US Withdrawal from OECD Global Tax Deal

January 23, 2025

Recently, shortly after taking office, US President Donald Trump issued an executive order withdrawing the United States from the OECD’s global tax deal. This agreement, designed to combat tax avoidance by multinational corporations, has been put on hold.

What is OECD Global Tax Deal?

The OECD Global Tax Deal was established to address tax avoidance by large multinational companies.
It consists of two main pillars:

Pillar 1 reallocates profits from home countries to jurisdictions where revenue is generated.
Pillar 2 sets a global minimum corporate tax rate of 15%.

Over 140 countries had signed the deal, aiming for a fairer international tax landscape.

US Executive Order Details

President Trump’s memorandum criticises the global tax deal for undermining US sovereignty and economic competitiveness. The order states that the deal imposes extraterritorial jurisdiction over American income and restricts the US’s ability to create tax policies beneficial to American businesses. Consequently, the US will not comply with the deal’s stipulations.

Impact on Global Tax Landscape

Experts predict that the US withdrawal will have consequences for the global tax framework. Countries that have already begun implementing the Global Anti-Base Erosion Model (GloBE) rules may need to revise their strategies to align with the new US stance. Approximately 50 jurisdictions had made progress towards adopting these rules, and they now face uncertainty.

India’s Position on the Global Tax Deal

India has historically maintained a cautious approach towards adopting GloBE rules.
The country has not yet made legislative changes in response to the OECD deal.
In the Union Budget 2024, India eliminated the 2% equalisation levy, which had been a contentious issue with the US.
Consequently, the impact of the US withdrawal on India’s tax collection is expected to be minimal.

Role of the OECD in Global Economics

The OECD, comprising 37 democracies with market economies, serves as a forum for developing policy standards that promote sustainable economic growth.
It facilitates collaboration among governments, enabling them to share experiences and develop high economic policy standards.
The OECD has been important source of evidence-based policy analysis and economic data for over 50 years.

Current OECD Membership and Economic Influence

OECD member countries account for a substantial portion of the global economy, representing three-fifths of world GDP and three-quarters of world trade. The organisation plays a vital role in promoting sound economic policies, innovation, and resource efficiency, thereby influencing global economic dynamics .

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