In his flurry of edicts, President Donald Trump has pulled the US out of a global minimum corporate tax pact, effectively squashing the concept and going against a plan of his predecessor. The editor mulls the implications.

Don’t say you weren’t warned that the next few weeks would be busy. On tax, Donald Trump is making a splash. The issue is how this might affect HNW individuals and their advisors. For those with significant beneficial ownership of corporations with overseas earnings, Trump may be causing them to uncork the champagne.

This week, in the blizzard of executive orders, Trump declared that a global corporate minimum income tax, as proposed in 2021 by his predecessor, was dead as far as the US is concerned. The notion has no force and effect in the US, he said.

Since former President Joe Biden proposed such a minimum tax – set at 15 per cent and adopted by the European Union, UK and other countries – the move was seen to curb companies' ability to salt away earnings in low/no-tax jurisdictions. For example, for years, Ireland and Luxembourg (both EU member states), among others, were attractive as corporate domiciles. These places attracted critics worried that big US firms such as Apple, Amazon and Microsoft were paying less tax than they should. On the other hand, critics of a harmonized minimum tax rate, such as the CATO Institute think tank in Washington DC, argued that this amounted to a tax “cartel”. 

Trump, in a presidential memorandum, has also ordered the US Treasury to prepare options for "protective measures" against countries that have – or are likely to – put in place tax rules that disproportionately affect US companies.

Trump may be issuing the funeral rites on a process that never quite got off the ground in the US anyway. Congress did not approve measures to bring the US into compliance with such a minimum tax; at present, the country has a global minimum of about 10 per cent, and that came in with the 2017 Tax and Jobs Act under the first Trump tenure. (There is also speculation on what will happen to the sunset clauses to the changes in thresholds on estate taxes and other measures – see here for analysis.)

An article in Reuters this week noted that countries that have adopted the 15 per cent global minimum tax may be able to collect a "top-up" tax from US companies paying a lower rate. Trump's memo referred to such actions as "retaliatory."

In the executive order, it said: "This memorandum recaptures our Nation’s sovereignty and economic competitiveness by clarifying that the Global Tax Deal has no force or effect in the United States."

Whatever may be the merits of ending such a minimum tax pact from the point of view of, say, offshore centers, it would be a mistake to think that the 47th President of the United States has struck an emphatic blow for competition. He is keen on tariffs – which are taxes, however one tries to dress them up – and these typically go hand in hand with catering to certain vested interests. But undoubtedly this is a move back to a more jurisdictional variety on tax, for those places happy to take advantage of it.

Given the broadly Rightward shift in politics that we are seeing in parts of Europe and North America, Trump’s executive order also suggests that we are now a long way from calls in governments for harmonized taxes on the “one per cent” or suchlike, as I have occasionally heard about, although these always strained credulity.

Trump has occasionally made noises about how individual taxes apply to expat Americans, encouraging groups such as American Citizens Abroad to urge him to move the US away from its worldwide system of tax. Time will tell if that ever happens – that might still be a step too far for even President Trump.