The United States under President Trump is taking a step back from the consensus on the OECD minimum tax and is pursuing its own rules. While Europe adheres to the 15 percent minimum rate, the U.S. is attracting the innovation and profit champions of the future with more attractive tax models. A dangerous imbalance is emerging, which poses major challenges, particularly for Switzerland and its innovation-driven companies. The transatlantic tax duel carries the risk of an economic war – but there are ways out of the deadlock.
Donald Trump is currently shaking up the global economy with tariffs and other measures. In order to achieve his goal – to make the U.S. more economically successful, to make U.S. citizens richer, and to increase domestic production – he is prepared to question international rules and reshape them in the U.S.’s favour. This includes the area of corporate taxation.
Trump’s Tax Strategy: Achieving Success and Prosperity Through Low Corporate Taxes
The Trump administration has clearly signalled that it views tax attractiveness for companies as a key element in achieving its objectives. The president announced tax cuts to 15 percent for production activities in the U.S. Even more significant, however, was the January 20, 2025, announcement of the U.S. withdrawal from the OECD’s digital taxation project and the threat of countermeasures against countries that introduce extraterritorial and discriminatory taxes. In addition to foreign digital taxes, the U.S. is particularly critical of two core components of the OECD minimum tax: UTPR and IIR. Both are extraterritorial taxes and ensure that U.S. companies that are part of a multinational group and pay less than 15 percent tax in the U.S. must pay the difference in other countries. If the Trump administration succeeds in preventing the application of IIR and UTPR to lower U.S. tax rates, companies – especially highly successful ones with substantial expenditures on research, development, and innovation – could continue to benefit from corporate tax rates well below 15 percent in the U.S.
U.S. Demand: Coexistence of GILTI and the OECD Minimum Tax
This is to be achieved by having the U.S. minimum tax – comprising of GILTI, CFC rules, and other elements – recognized by the OECD as equivalent to the OECD minimum tax and allowing both systems to coexist. This would mean that, for all foreign subsidiaries of U.S. parent companies, the GILTI system would apply instead of UTPR or IIR. This would lead to significant fiscal and economic changes both within and outside the U.S., as the GILTI requirements are less strict from a corporate perspective. The GILTI rate currently stands at a maximum of 13.125 percent and could even be reduced further. Moreover, GILTI allows for global blending, meaning tax rates from various countries are averaged into a global effective tax rate, which must not fall below the minimum rate. As a result, foreign subsidiaries of U.S. parent companies – and also U.S. intermediate holdings of groups from minimum tax countries – could continue to benefit from zero rates in individual countries. In contrast, the OECD minimum tax assesses compliance with the 15 percent rate on a country-by-country basis. Coexistence of the two systems would thus result in unequal treatment between U.S. and non-U.S. groups – with significant disadvantages for the latter.
Why Should OECD Minimum Tax Countries Accommodate U.S. Demands?
The OECD minimum tax is designed with IIR and UTPR so that no country can unilaterally shield its multinationals. For OECD minimum tax countries to refrain from applying UTPR against U.S. companies, and to recognize the coexistence of the U.S. minimum tax, the U.S. is planning sanctions instruments. Specifically, two such instruments (Section 899 and SuperBEAT) are to be included in the upcoming Budget Reconciliation Bill. These would impose extremely painful measures on companies from countries that apply UTPR against U.S. entities. The massive pressure from the U.S. therefore calls for a response from countries that have already implemented the OECD minimum tax.
Diplomatic Struggle for Tax Peace
Especially for EU countries with UTPR and IIR in place, the question is how to respond to the U.S. demand and the threat of massive sanctions. EU countries and the EU Commission are likely aware of the significant competitive disadvantages their companies would face compared to American competitors under a coexistence scenario. At the same time, the EU is currently working to enhance its economic attractiveness. Strengthening competitiveness vis-à-vis the U.S. is a key priority, as emphasized in the Draghi Report. For Europe’s important innovative companies mentioned in the report, coexistence would greatly increase the incentive to relocate activities from Europe to the U.S. This also applies to Swiss companies. In the U.S., companies could benefit – in addition to many non-tax advantages (capital markets, etc.) – from attractive tax incentives for R&D&I investments. However, EU member states are determined to uphold the OECD minimum tax. U.S. tax sanctions would hit many major European companies hard, which is not in the interest of European governments. Meanwhile, recognizing coexistence would require unanimity among EU member states to amend the EU Minimum Tax Directive. Given the U.S.’s imposition of trade tariffs, the willingness to accommodate the U.S. may be low in European capitals. Behind-the-scenes negotiations are currently underway between the U.S. and the EU Commission to prevent an economic war with reciprocal sanctions between the U.S. and the EU. Such a conflict would financially harm companies on both sides.
Adjustments at OECD Level: The Goal Must Be a Level Playing Field
The current situation is highly complex, and the risk of economic disadvantages for Europe – and especially Switzerland – is considerable. Countries with an OECD minimum tax should therefore ensure a level playing field in tax competition with the U.S., if coexistence between GILTI and the OECD minimum tax becomes reality – which we currently expect. From the perspective of SwissHoldings, two adjustments to the OECD minimum tax rules are essential.
First, certain tax deductions benefiting innovative companies must be permitted under OECD rules. Companies primarily from the technology, pharmaceutical, and some other sectors in the U.S., Switzerland, and other countries currently have effective corporate tax rates below 15 percent. To secure the investments and innovations that ultimately lead to substantial tax revenues from these companies over the long term, OECD rules must allow states to grant selected tax deductions to companies that invest significantly – domestically or abroad – in innovation, including product innovations or other so-called “good areas” (e.g., reducing CO2 emissions). In other words, the current distinction between “good” Qualified Refundable Tax Credits and “bad” Non-Refundable Tax Credits must be eliminated. At the same time, reasonable rules must be established in the area of “Related Benefits” so that the promotion of forward-looking innovative activities is not impeded. Administrative simplifications are also crucial. Applying all OECD minimum tax requirements will simply be too complex for many of the affected companies and tax administrations.
Second, the OECD minimum tax should be reformed toward the GILTI system with its global blending. In other words, IIR and UTPR should only apply if, as with GILTI, the blended global rate falls below 15 percent. If these two innovations, together with effective administrative simplifications, can be implemented, European countries (including Switzerland) would at least have similar conditions in tax competition with the U.S. These changes may not align with the original intent of the minimum tax. However, if the U.S. – the world’s most important and innovative economy – opts out of the scope of the OECD minimum tax, the remaining countries must respond and cannot simply pretend nothing has happened.
Switzerland in the Global Tax Overhaul
A unilateral withdrawal by Switzerland from the OECD minimum tax is currently out of the question. The OECD minimum tax rules remain in force. This means that as long as key markets like the EU implement the minimum tax, Swiss companies will pay it anyway due to IIR and UTPR. They would just no longer pay it in Switzerland, but abroad. Switzerland does not have the economic and political weight of the U.S. to secure the necessary concessions at the OECD to shield its multinational companies from the minimum tax. Switzerland must therefore work to achieve the OECD minimum tax adjustments described above at the international level. In parallel, it must remain flexible and pragmatic domestically and adapt as best as possible to the new rules of location competition.
Contact
Martin Hess | Head Tax Policy, Member of the Executive Committee
martin.hess@swissholdings.ch | +41 31 356 68 61
The editorial deadline for this article was Friday, May 9th 2025.
