The United States will not join the GloBE regime

According to the presidential memorandum (dated January 20, 2025) directed to the Secretary of the Treasury and the U.S. Permanent Representative to the OECD, the United States is withdrawing from the Global Tax Deal. Therefore, the GloBE system will not apply in the United States. Does this mean that the GloBE system is no longer a global system?

In Section 1 of the memorandum, it was indicated that the Secretary of the Treasury and the U.S. Permanent Representative to the OECD will inform the OECD that any obligations undertaken by the previous administration – on behalf of the United States – regarding the Global Tax Deal are without force or effect in the United States unless enacted by Congress through appropriate legislation adopting the provisions of the Global Tax Deal. The Secretary of the Treasury and the U.S. Trade Representative will take additional steps to implement the provisions of the memorandum.

Consequences of the U.S. withdrawal from the GloBE regime

Given the scale of U.S. investments abroad, one could argue that the system is no longer global. At the same time, EU member states, the United Kingdom, Canada, Japan, and Australia are now facing the dilemma of how to approach subsidiaries of American corporations located in these countries. After all, these subsidiaries will be subject to local top-up taxes if the top-up tax has been introduced in the respective country and the subsidiaries in that country have an Effective Tax Rate (ETR) below 15%.

Additionally, applying the Undertaxed Profits Rule (UTPR) will require taxing under the insufficiently taxed profits rule – for example, in a situation where the ultimate parent entity [UPE] is located in the U.S., where the qualified income inclusion rule will not apply, or the U.S. will be considered a low-tax jurisdiction (and simultaneously, the UPE will not be subject to the qualified IIR).

U.S. reaction to top-up tax

Importantly, the application of a top-up tax (e.g., in the situation described above) will most likely trigger a corresponding reaction from the U.S. government. To this end, the presidential memorandum (Section 2) includes an order for the Secretary of the Treasury to:

• Verify whether any countries are violating the terms of tax treaties with the United States or whether there are or could be introduced extraterritorial tax laws or provisions that disproportionately affect American companies, and
• Develop and present (within 60 days) to the U.S. President – through the Assistant to the President for Economic Policy – a list of possible protective measures or other actions that the United States should adopt or take in response to identified (i) violations of tax treaties or (ii) tax laws that harm the interests of American businesses.

What’s next for GloBE?

In our view, the implementation of provisions regarding the UTPR principle, including in the law of November 6, 2024, on the top-up taxation of members of multinational and domestic groups, may not go unanswered by the U.S. administration. Since the GloBE Act implements Directive 2523/2022 (which provides for the UTPR principle), a similar issue concerns other EU member states, so we can expect an urgent response from the EU. The question is whether the EU can afford to take a confrontational approach to the U.S., or whether there will be a need to urgently adapt the GloBE system (from a European perspective) to the new realities, or even temporarily suspend the system as it is no longer truly global without the U.S., but only local?