Trump’s Global Minimum Tax Reset Signals the Return of Digital Trade Frictions

Yesterday’s “Memorandum on the OECD Global Tax Deal” has two implications. First, it sets back US participation in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) by nullifying Biden administration commitments and requiring explicit congressional approval—unlikely given current politics. Second, the memo likely revives Section 301 investigations into foreign tax practices, particularly DSTs, which could trigger retaliatory tariffs and pushback against regulatory enforcement abroad.

The OECD/G20 BEPS framework aimed to close international tax optimisation through a 15% global minimum corporate tax and new rules for taxing rights allocation. Though 147 countries joined, its implementation in the US always required Congressional approval—a condition, which was never met. As the Trump administration formally withdraws executive support, other jurisdictions like the EU, UK, Singapore, and Brazil are still implementing aspects of BEPS Framework. The withdrawal of US support, however, weakens the framework's global impact.

Digital services taxes emerged as governments grappled with taxing companies who serve markets without a physical presence. Traditionally, countries taxed corporate profits based on local establishments—a store, factory, importer, or office. Digital business models disrupted this by enabling companies to generate revenues directly from users in a country without physical presence. While some governments viewed DSTs as legitimate attempts to tax economic activity in their jurisdiction, critics argued these taxes claimed a right to tax profits that, under traditional principles, belonged to the jurisdiction where the digital service was developed and managed. This disagreement over taxing rights made DSTs controversial from the start.

The Trump Memorandum unravels a compromise reached in 2021 between some European governments, India and the Biden Administration. Under that arrangement, seven countries with implemented DSTs agreed to credit them against future tax obligations once the global minimum tax took effect. In exchange, the US suspended retaliatory tariffs it had prepared following Section 301 investigations into those DSTs. This pause allowed for the implementation of the broader BEPS framework.

The immediate concern is the revival of trade tensions over DSTs. The previous Trump administration's USTR investigations targeted eleven countries, with determinations against seven: Austria, France, Italy, Spain, Turkey, the UK, and India. The investigations led to proposed additional 25% tariffs on selected products. Targeting up to 67 products per country, the total coverage of these tariffs, if implemented today, is approximately $5 billion worth of imports—a modest amount given these countries' combined $350 billion in US exports. Looking at countries individually, these tariffs would expose 3 percent or less of national exports to the US to heightened barriers.

Since the USTR made its determination in 2020, the landscape of digital economy tax reveneus has evolved significantly. Since the original investigations, DST revenues have grown. For instance, Austria recently reported DST revenues of €100 million for 2024, more than double the USTR's 2019 estimate of €40 million. In turn, the new administration could seek proportionally higher tariff revenues. Furthermore, the USTR could expand investigations to new DST adopters. In the last 18 months, around a dozen countries across all continents have enacted digital taxation legislation. Canada starts implementation this year and has received a USMCA consultation request from the Biden administration.

The timeline for the next steps is relatively short. The memorandum requires the Treasury and USTR to identify "extraterritorial or discriminatory" tax measures and propose options within 60 days. The March 2025 deadline gives the White House policy leverage as it engages with trading partners. While China and Mexico are the focus now, Europe may be next. The administration may use the USTR determinations to pressure for DST rollbacks and influence broader regulatory issues, especially in the EU where Trump affiliates hinted at seeking regulatory forbearance for US tech companies.

The shift to bring DSTs back into focus demands attention on multiple fronts for businesses and policymakers. The end of US participation in BEPS creates uncertainty around global minimum tax implementation. Meanwhile, companies must prepare for potential tariff impacts while monitoring national DST regimes. Close monitoring will be needed as the administration leverages these tools in negotiations over tech regulation and taxation abroad.