The return of Donald Trump raises the prospect of a global tax war.

Donald Trump’s second term in the White House could lead to a global tax rift, experts say, as Republicans worry that countries will impose additional taxes on US multinationals.

As the head of tax of a large multinational told the Financial Times, 2025 “could be the year everything goes to hell in handbaskets and businesses get caught in the middle,” he said.

Alan McLean, business chair of the OECD’s Tax Committee, which represents business interests in talks among the group of developed economies in Paris, said imposing tariffs in response to global tax measures “could hamper economic growth by raising operating costs for businesses.” and increasing value for consumers.”

The arguments center on Republicans’ unhappiness with a key part of the international tax treaty agreed to. OECD Starting this year, it will allow other countries to levy additional taxes on US multinationals.

TrumpA self-described “tariff man,” he has repeatedly threatened to use tariffs to ensure the interests of American businesses and households are protected. After winning the US election, the president-elect threatened to scrap free trade agreements with Canada and Mexico and impose 25 percent tariffs on imports from its neighbors.

Tax experts believe The European Union is in conflict. Republicans have labeled a key part of the OECD agreement, known as the Untaxed Profits Rule, often referred to as the UTPR, as “discriminatory.”

The rule allows countries to raise taxes on a local subsidiary of a multinational group if the multinational pays less than 15 percent corporate tax in any other jurisdiction. The rule means that other countries can impose additional tariffs on US companies.

“There is a broad sense among Republicans that US companies should not pay the UTPR,” said Aruna Kalyanam, head of global tax policy at EY.

The European Union enacted the measure under a 2022 directive, but some experts believe that better treatment for the bloc’s exports could lead to a deal with Trump on implementation.

The EU has a trade surplus with the US of 158 billion euros, according to European Commission figures.

Valentin Bendlinger said “Europe has a strong legal culture and the law is the law, but between Trump and the EU I can imagine a future where the EU will abandon the UTPR in order not to get into an economic war”. Senior consultant at ICON Wirtschaftstreuhand, a tax consulting company in Austria.

However, others say that it is impossible to bring about change as it requires agreement from all 27 member states.

“(UTAPR) is a widely applied, powerful bargaining chip and cannot be easily reversed,” said Rasmus Korlin Christensen, an international tax researcher at Copenhagen Business School.

From 2021, more than 140 countries are working to implement the historic tax agreement in the OECD.

Countries have agreed in principle that the agreement consists of two “pillars”. The first is to force the world’s largest multinationals to declare profits and pay more taxes in the countries they do business with. The second would introduce a 15 percent international minimum effective corporate tax rate, which would limit domiciles to pay less tax on their profits than multinationals.

Jason Smith, an influential Republican congressman in 2023, described the international OECD agreement as “Biden’s international tax handover.”

Smith drafted a bill to increase the tax rate on companies headquartered in jurisdictions that have “extraterritorial and discriminatory taxation” on US multinationals, including the UTPR. The bill has not passed, but it could be revived under a Trump presidency.

It would not be a “heavy lift” for a Republican administration, which controls all branches of government, to enact this legislation, Kalyanam said.

Smith’s opposition to the OECD agreement is shared by Republican senators. A senior congressional aide echoed Smith’s language, saying the UTPR law was widely viewed by Republican lawmakers as “discriminatory” and “out of scope.”

“In general, Senate Republicans feel the tax deal is detrimental to American interests,” the aide said.

The question of whether a tax war will occur may depend on when and how other countries seek to enforce the UTPR.

To date, the UTPR has been enacted into law in Australia, Canada, Japan, New Zealand, Norway, South Korea, Turkey and the United Kingdom in jurisdictions with the European Union.

However, some countries in the OECD that consider US concerns have introduced a “temporary safe harbor.” This UTPR delays the effective date of the statutory corporate tax rate to 2026 for countries with a corporate tax rate above 20 percent. The U.S. has a 21 percent rate, though Trump has proposed lowering it to 15 percent for domestic manufacturers.

Not all states that have ratified the UTPR have introduced a safe harbor clause.

“This is creating a lot of hand-wringing for companies,” said Danielle Rolfes, head of KPMG’s Washington national tax practice.

Others hope that a deal could be reached between the countries to end the tax war.

“There will be some kind of compromise. That’s what Trump likes to do. It will be painful down the road though,” said a multinational tax executive.

One way countries can decide to avoid the potential problem of US multinationals being subject to the UTPR is to further delay the implementation date of the rule past 2026.

Grant Wardell Johnson, head of global tax policy at KPMG International, said: “I suspect they will kick it down the road and the UTPR safe harbor will be extended. In this regard, many countries do not want to have a political struggle with America.