As Donald Trump takes office for a second term as US President, the most pressing question on the minds of people around the world is this: What will happen to the global minimum tax, and in particular its ‘UTPR’, otherwise known as the “fuck you rule“?

Jokes aside, international tax policy is probably the farthest thing from most people’s mind given the earth-shaking changes set in motion by a second Orange Man stint as Commander-in-Chief.

Still, there are some absolute sickos out there – myself, sadly, included – who do think about this stuff. Some of them even get paid to think about it, ugh.

And if you’re out for a bit of self-legitimation, there are certainly valid arguments as to why it means something in the grand scheme of things what happens to the global minimum tax, the radical OECD agreement among 140+ countries to tax the profits of all large companies at no less than 15%. The agreement raises billions in new revenues for governments around the world to spend, stops the decades-old ‘race to the bottom’, and revolutionises tax regulation by exploiting the networked structures of the modern global economy. These are certainly not insignificant effects.

So what happens to these rules now does matter. In this post, I’m going to lay out some likely future paths. As with any future speculation, this should be taken with a grain of salt and critically evaluated. But it does, I think, at least provide a clear and useful baseline for thinking about the imminent prospects of the global minimum tax, in a way that much recent speculation doesn’t.

Only parts of the global minimum tax are in the firing line. Probably.

Now, some people want all that fun to end: the revenue raising, the ‘race to the bottom’ stopping, the regulatory revolutionizing. Indeed, it has become established knowledge that the Republicans hate the global minimum tax deal, and specifically one particular part of the deal: the ‘UTPR’. If you’re in need of a refresher, here’s why the UTPR is a pretty big deal:

The UTPR (..) is a big ‘fuck you’ to [established] principles. It allows countries to tax profits that are neither earned in their jurisdiction nor earned by their resident companies. On the contrary, it allows countries to tax income earned outside their jurisdiction (anywhere in the world!) by foreign companies (wherever they are based!). Practically, the UTPR works by giving any country where a multinational company has some presence (e.g. a subsidiary or permanent establishment) the right to apply a top-up tax if the company has an effective tax rate below 15% in any country around the world. Imagine giving China the right to tax some of Apple’s European profits through Apple’s Chinese subsidiary because the company pays a low effective tax rate in Ireland. That’s the gist of it! Here’s a practical example of how the rule would work. I’m simplifying again, and there are several restrictions on the UTPR, but conceptually, those are the broad strokes. When we put it like that, it sounds like some insane super-charged extraterritorial taxing power, doesn’t it?

There are some important caveats to this established knowledge, however. Without going into too much detail about recent history, it is worth noting two things. First, the global minimum tax arose out US domestic policies adopted by the Republicans in the Trump I era, which other countries saw and wanted to mimic. Second, the UTPR emerged when Trump (not Biden) was negotiating the global minimum tax rules at the OECD, and US admin staffers have signalled that support for the UTPR arose, in part at least, because its radical nature would help ensure that geopolitical rivals, principally Chinese companies, couldn’t escape the rules. So Republicans are perhaps less miffed about the rules themselves, and more miffed about the unfortunate and entirely unintended outcome whereby, because Joe Biden failed to get the requisite domestic reforms done to implement the global deal, foreign governments are slated to impose the global minimum tax on US companies – via the UTPR.

Thus, on Donald Trump’s second first day in office, among a flurry of executive orders, he signed two specifically aimed at undermining the global minimum tax, and specifically the UTPR: one instructing new Treasury Secretary, Scott Bessent, to tell the OECD that the US no longer supports the global minimum tax deal, and one threatening to invoke a century-old rule to double tax rates on foreign companies if their home governments discriminate against US companies.

The upshot here is that we need to cut through the rhetoric a little bit, because people seem get a little bit confused about what’s at stake. It’s probably gibberish when new Treasury Secretary Scott Bessent, in his confirmation hearing, warned foreign governments of implementing the global minimum tax as such, for instance. Instead, it is likely* that it is the (unintended consequences of) the UTPR component of the global minimum tax rules, more than the whole deal, that will attract US wrath under Trump II. This is consequential because, as I’ll get to in a bit, the global minimum tax will most likely still be an expansive, radical policy, even in a world without the UTPR.

It is also worth noting that these actions were largely anticipated. Republicans and Trump advisors have been saber-rattling these exact policy signals for a long time. So, shock and awe headlines aside, Trump’s second Day One doesn’t tell us much new about the future prospects of global tax governance. There is certainly no real substance in either of the two executive orders to guide expectations about what the Trump II administration will actually do, or what actual effects it will have.

This is why, much like in other policy domains where Trump II has accompanied inflated rhetoric with limited policy substance, good advice is to avoid overreactions and anticipatory deference. Plenty of doomsayers have buried the global minimum tax and the entire complex of global tax governance in advance of Trump’s second inauguration.

Trump can’t simply kill (parts of) the global minimum tax. Probably.

Instead, I think it is worthwhile zooming out a bit and ask, what are the likely actions of a Trump II administration as regards the global minimum tax, and what are the likely consequences?

Let’s tackle the first question first: What will Trump do? No one knows, but we have pertinent clues from Trump’s first term, from his and Republicans’ current rhetoric, and his general policy proclivities. Likely, he will warn of tariffs and “anti-discriminatory” taxes, hoping that this will induce policy change amongst foreign governments. That’s what he did previously, that’s what he has said he will do, and that’s how he seems to prefer tackling a range of policy issues. He could, of course, threaten the rest of the world with nuclear war, and that’d probably sway everyone to give up on the UTPR, but then again if World War III breaks out over a non-binding tax policy template conjured up by some nerdy folks in Paris, I’ll be.. mildly suprised.

Now, if trade war over the global minimum tax is at the door, this is by no means a given automatic mechanism by which foreign governments fold and defer to US demands. Why is this? There are general and context-specific reasons, which I’ll try to outline in brief:

First, trade wars are hard to win. The lesson from Trump I is not that tariffs were succesful and effective. Rather the opposite. As US centrality in global trade has declined, they can be limited in their effects; they are costly for American consumers; and they may be easy to avoid through trade substitution and economic reorganization (see the flurry of recent global trade deals, or the US-shoring of foreign firms’ production), and because Trump has seemed willing to be content with symbolic gestures from negotiating partners. (Trump could wage much more effective economic warfare but that’d require using and expanding the exact bureaucratic capacity and expertise that he has vowed to dismantle.)

Second, these things are doubly true in the international tax domain. While the US remains a global tax superpower, (geo)political shifts have meant every single US president since Barack Obama has had to toil against global taxing trends, fighting ‘rearguard’ fights to limit – but not entirely curtail – foreign governments’ desires on taxing US companies more, more effectively, and differently, via anti-avoidance and transparency rules, digital taxes, and now minimum taxes.

In fact, in his first term, Trump threatened to use – but never actually applied – the exact same tools (trade sanctions and “anti-discriminatory” taxes) against a host of foreign countries pursuing digital services taxes, perceived to be aimed unduly at large US tech firms. It didn’t succeed: The prospect of trade war only served to weaken the US’ bargaining position, stalling global negotiations at the OECD while ensuring a consistent trickle of national digital tax initiatives, with more than 80 countries now having such rules in effect.

Third, the global minimum tax presents an arguably even more difficult sanction ‘object’ than digital services taxes because of its multilateral but decentralized design. The global minimum tax has no centralized treaty or enforcement mechanism, it is merely a set of model rules, non-binding recommendations that countries can implement in domestic law – or not. That’s part of the genius of it, and why it has been widely implemented: More than 60 jurisdictions have implemented or committed to implementing (most of) the rules, enrolling around 90% of in-scope MNEs (corporates with consolidated group revenue of EUR 750 million or more) in the minimum tax system. For the UTPR only, you’re dealing with the 27 EU members, Australia, Canada, Japan, New Zealand, Norway, South Korea, Thailand, Turkey, and the UK. This structure mirrors the digital tax problem; an effective Trump II trade war would have to roll back legislation in all of these jurisdictions, while stemming the tide for any other interested governments. Not an easy task, as the digital tax story tells us.

The problem (from a Trump perspective) is particularly pertinent in the EU – the main target of Republican wrath – because the minimum tax rules, including the UTPR, were implemented via a common directive, which requires unanimity to roll back. If you know anything about EU politics, you know that unanimity in tax matters is nearly impossible to achieve. Indeed, alongside unprecedented intra-EU coercion, a full-court diplomatic press by the Biden administration (something we have not seen Trump willing to pursue) were significant factors in the minimum tax directive passing in the first instance.

Moreover, the UTPR – much like digital taxes – is a powerful bargaining chip, which takes advantage of market power that, structurally, the US administration cannot do much about. Take the EU’s implementation of the rules: More than 80% of the world’s largest companies – including almost all large US firms – do business in the EU market, which brings their profits under the scope of the 15% minimum tax via the UTPR. The US is a huge market, and threats to raise the costs of market access does present substantial deterrence to foreign adversaries, but the EU market is equally a substantial attraction, which confers power and leverage.

There are probable domestic constraints to effective trade war in Trumpland, too. The major tax cuts from Trump’s first term, enacted through the Tax Cut and Jobs Act (which also included the US domestic precursor rules to the global minimum tax) are set to expire this year, prompting a huge ‘tax cliff’ that will need resolution through comprehensive domestic reform. This presents an opportunity for Trump and the Republicans to resolve the global minimum tax/UTPR concern differently: by way of minimal adjustments to domestic regulation in alignment with the OECD model rules. There is no suggestion that Republicans nor Trump want to do this, but given slim Republican margins (especially in the House), Congressional politics and raw numbers may mean that the straightforward route to resolving the transatlantic spat – domestic reform – may prevail over the more difficult and costly global trade war route.

Together, these structural constraints may curtail Trump’s goal attainment should he pursue the elimination of the UTPR and the weakening of the global minimum tax. This may lead to renewed global negotiations, as already speculated in the New York Times, and similar to happened in the digital tax conflict. A new round of negotiations, in turn, has many feasible middle-way outcomes whereby the US and the EU (and others) each receive some concessions. One option is the preservation of the UTPR as aimed at low-tax havens, while extending or making permanent the transitional UTPR safe harbour, which currently provides temporary protection against the UTPR for US businesses. Another would be to scale back the global UTPR to something that looks more closely like its US policy inspiration, the ‘Base Erosion and Anti-Abuse Tax’ (BEAT), which has a similar function but is less expansive in its scope and application.

Killing the UTPR won’t kill the global minimum tax. Probably.

You have to concede, though, that there is a world in which Trump and the Republicans do succeed in eliminating the UTPR wholesale. In that case, what would that mean for the global minimum tax? Despite a raft of economic modelling of the impacts of global minimum tax, we don’t have very solid empirical footing to help us answer this question. But we can make some tentative suggestions.

To start, because the UTPR works mainly as a deterrent to defection (i.e. tax havens won’t benefit from offering effective tax rates lower than 15% because the UTPR helps ensure that other countries would pick up the tax revenue if they did), it isn’t actually estimated to raise very much revenue on its own. In any scenario, countries changing their domestic rules to ensure that businesses in their jurisdiction pay at least 15% in corporate tax is the main revenue-raising dynamic.

Countries are expected to do that, in part, because they are incentivized by the UTPR, and in that sense the UTPR provides a substitute for diplomatic strong-arming, an alternative way that powerful governments can force tax havens to follow their demands. Absent the UTPR, a willing transatlantic political coalition could likely achieve the same goal – ensuring that most or all low-tax havens collect a minimum level of corporate taxes – through other coercive means, such as they did to end bank secrecy.

US resistance to the UTPR, however, might signal that such an expansive, anti-tax haven, coercive coalition would no longer exist. Together, the absence of the UTPR as an effective regulatory backstop, and the absence of a political coalition to force tax havens to comply with the minimum tax rules, would likely significantly weaken the global minimum tax by reducing the incentives for countries (tax havens in particular) to effectively tax multinational corporations operating in their jurisdiction.

It is not entirely given, though, that an anti-tax haven coalition would disappear, when you consider that there have been persistent rumblings among Trumpists and US Republicans about a dissatisfaction with, in particular, Ireland’s outsized tax revenues from US companies. Non-US powers – notably the EU – would also likely maintain some level of commitment to ensuring effective minimum corporate taxation around the world, even in the absence of Trump’s support.

The rule design also entails compliance incentives beyond the UTPR. Other parts of the global minimum tax complex would remain, parts that enable governments to effectively tax the domestically-generated profits of foreign businesses (the ‘QDMTT’) and the foreign-generated profits of domestic businesses (the ‘IIR’). Like the UTPR, these rules narrow the playing field for corporate profit shifting, leveraging the market power of implementing countries. ‘GILTI’, the US equivalent to the IIR, works extra-territorially and has raised billions in US corporate tax revenues since its introduction in 2017.

All of this suggests that, with substantial uncertainties, a global minimum tax absent the UTPR mechanism would remain an expansive, ground-breaking reform, globally institutionalizing guardrails to corporate taxation that go far beyond historical policies in this domain. It just won’t be quite as effective or radical as it would be with the UTPR.

Of course, as I said up front, we don’t know what is going to happen next, and I am putting forward this analysis at a time of significant uncertainty and change. Still, there are good reasons to think that only parts of the global minimum tax are in the firing line, Trump can’t simply kill (parts of) the global minimum tax, and killing the UTPR won’t kill the global minium tax entirely. Probably.

_________________________________

* I do need to hedge a bit here because prediction in the Trump II age is a fool’s errand, and maybe we’ll all wake up tomorrow to learn that he wants to nuke the entirety of the global tax complex. However, it is hard to imagine that the non-UTPR parts of the global minimum tax, in particular the so-called ‘Qualified Domestic Minimum Top-Up Tax’ (QDMTT) and the ‘Income Inclusion Rule’ (IIR), would provoke much US anger. I don’t want to spend a great deal of time on this here but suffice to say that, there has been no real indication of US unhappiness with other countries’ application of these rules, probably because the two rules are, essentially, a domestic corporate income tax, and a super-charged ‘controlled foreign corporations’ rule. As such they accord with long-standing (US-supported) global taxing norms; there is no real argument that they are discriminatory against US companies nor that they overlap with US taxing authority; and it would constitute a radically unprecedented infringement of other governments’ sovereignty if the US sought to permit the application of basic domestic corporate tax policies. It would also, structurally, be even more difficult for Trump II to have these policies rolled back given that, in comparison to the UTPR, the scope of regulatory application, the widespread implementation, and political capital invested in these rules, offer even more significant constraints on any US ‘retaliatory’ action.