The USA government on January 20, 2025, issued a groundbreaking directive through a memorandum from the White House. This memorandum declared the Organization for Economic Co-operation and Development (OECD) Global Tax Deal as having “no force or effect” in the United States. Furthermore, it disavowed all commitments previously made by the U.S. regarding the deal unless ratified by an act of Congress. The move signaled a significant shift in the U.S.’s stance on international tax policy and called for the Secretary of the Treasury to craft a strategy addressing foreign tax policies deemed unfavorable to American interests.
This decision raises crucial questions about the future of global tax cooperation and its ripple effects, particularly for multinational corporations and economies, including those in Africa.
The OECD Global Tax Deal emerged after more than a decade of deliberations aimed at tackling “base erosion and profit shifting” (BEPS). BEPS involves strategies multinational corporations use to minimize their tax liabilities by exploiting gaps and mismatches in tax rules, often shifting profits to low-tax jurisdictions.
The global minimum tax of 15% on corporate profits is a cornerstone of the deal. This mechanism includes granting jurisdictions the authority to impose a “top-up tax” to ensure large multinational groups pay at least the minimum rate on profits earned within their borders, regardless of whether tax treaties or local tax laws shield such profits. The agreement sought to harmonize tax systems worldwide and prevent tax avoidance strategies, leveling the playing field for both developed and developing economies.
The memorandum critiques the OECD tax deal as infringing on U.S. sovereignty and hindering its ability to establish tax policies favoring American businesses and workers. It portrays the deal as a gateway for other nations to exercise “extraterritorial jurisdiction” over American income, potentially enabling them to impose top-up taxes on U.S. firms operating abroad.
The administration also expressed concerns about retaliatory international tax regimes that might target American companies if the U.S. fails to align with foreign tax policies. To safeguard its economic interests, the U.S. explicitly rejected the Global Tax Deal’s commitments and instructed key officials to notify the OECD of this position.
The memorandum also tasked the Secretary of the Treasury and the U.S. Trade Representative to investigate tax treaty compliance by other nations and identify “protective measures” against tax rules perceived as extraterritorial or disproportionately affecting U.S. companies. Within 60 days, the Secretary is expected to deliver a comprehensive report on these issues.
The withdrawal from the OECD Global Tax Deal introduces uncertainty for multinational corporations with operations spanning multiple jurisdictions. Companies that anticipated a more predictable global tax framework may now need to reevaluate their tax strategies to navigate divergent national policies.
For U.S.-based multinationals, the rejection of the deal might temporarily alleviate compliance pressures associated with the 15% global minimum tax. However, it could expose them to punitive measures, including digital services taxes or other targeted levies implemented by foreign jurisdictions.
Companies outside the U.S. are also likely to feel the effects. For instance, nations that implement top-up taxes under the OECD framework may now find it challenging to enforce such rules on American firms, creating an uneven competitive landscape.
The U.S.’s withdrawal from the OECD Global Tax Deal has significant ramifications for global tax policy and economic cooperation.
- Undermining Multilateralism – The OECD tax deal was a testament to global cooperation, addressing challenges posed by globalization and digitalization. The U.S.’s withdrawal risks eroding trust and collaboration among member nations, potentially hindering future efforts to address international tax issues.
- Increased Unilateral Measures – Countries frustrated by the lack of global consensus may implement unilateral tax measures like digital services taxes. These taxes could escalate trade tensions, as nations retaliate to protect their economic interests.
- Impact on Developing Economies – African countries and other developing economies stand to lose from the U.S.’s stance. The global minimum tax was expected to curb tax base erosion, ensuring multinationals contribute fairly to the economies where they operate. Without uniform implementation, developing countries may struggle to collect adequate revenue from corporate activities within their borders.
- Economic Power Shifts – The withdrawal may shift the balance of power in international tax negotiations. Other major economies, such as the European Union and China, could take the lead in shaping global tax policies, potentially sidelining U.S. interests.
For African nations, the OECD Global Tax Deal represented a potential tool to address revenue shortfalls caused by tax avoidance and evasion. Many African economies rely heavily on corporate tax revenue, making them vulnerable to BEPS practices.
The absence of the U.S. from the deal weakens its effectiveness, reducing the likelihood of widespread compliance. This could embolden corporations to continue exploiting loopholes, depriving African countries of much-needed revenue to fund infrastructure, healthcare, and education.
Additionally, Africa’s dependence on foreign direct investment (FDI) complicates its position. Stricter tax enforcement might deter FDI, while lax enforcement risks further revenue losses. Striking a balance becomes even more challenging without a global consensus.
What Lies Ahead?
The U.S. administration’s memorandum signals a broader shift toward prioritizing national interests over multilateral agreements. While this approach may yield short-term economic benefits for the U.S., it risks destabilizing the global tax ecosystem and intensifying economic disparities between developed and developing nations.
African countries, in particular, must strengthen regional cooperation to address BEPS challenges. Organizations like the African Tax Administration Forum (ATAF) can play a pivotal role in harmonizing tax policies, enhancing transparency, and promoting capacity building.
For multinational corporations, the focus should be on maintaining compliance with evolving tax regulations while advocating for greater clarity and consistency in global tax policy.
The U.S.’s withdrawal from the OECD Global Tax Deal marks a turning point in international tax policy. While the decision reflects America’s desire to safeguard its economic sovereignty, it also disrupts years of progress toward a fairer and more equitable tax system.
For Africa and other developing regions, the path forward involves embracing innovative solutions, fostering regional collaboration, and leveraging global platforms to advocate for their interests. As the world navigates this uncertain landscape, the importance of cooperation and dialogue cannot be overstated. The challenge lies in balancing national priorities with the collective good to build a tax system that works for all.
