Tax Execs Plot Response to Fallout from Trump’s Trade Threats

Companies are marshaling tariff experts, bolstering their political networks and seeking out countries with stable tax systems—all in a bid to inoculate themselves from the tax policy uncertainty ushered in by the new Trump administration.

President Donald Trump and Republicans’ zeal for tariffs and retaliatory taxes has the US on the path to a global trade war. The president promises 25% tariffs on Canada and Mexico starting Feb. 1, and previously floated the idea of blanket tariffs on all US imports.

Trump, in a Jan. 20 memo, also withdrew the US from any commitments made by the Biden administration in previous OECD tax deal negotiations, including over the global minimum tax.

The uncertainty over US tax policy parallels the wider governmental disruption that Trump promised to deliver, and that’s been unfolding every day since his inauguration. No concrete measures are yet in effect, but just the anticipation of them has sent chief tax officers and other executives scrambling on a reconnaissance mission, according to advisors at the Big Four and other tax professionals who’ve been fielding calls from multiple clients.

Their goal: information on how other governments might react to Trump’s threats, and how that will impact their bottom lines.

“What I have seen is CTOs craving information about different scenarios because they want to be able to go to their boards or senior leadership and say, ‘We’ve got to consider the possibility that this might happen in the tax domain,’” said Grant Wardell-Johnson, global tax policy leader at KPMG.  

In Europe, companies are seeking countries’ advance approval of their tax positions under the 15% global minimum tax amid the ever-changing tax environment said Steffie Klein, a senior associate at Loyens and Loeff based in Amsterdam.

Some companies, amid the geopolitical volatility, are seeking out “islands of stability” that have pledged to be part of the global minimum tax but are also attractive jurisdictions to invest in, said Pat Brown, a co-leader at PwC’s National Tax Office.

The reasons are obvious: A sudden change in tax or trade policy could translate into exorbitant costs for a flat-footed company—and losses to their shareholders.

“It’s the combination of tariffs plus retaliatory tax measures that could make it very expensive to either do business in the United States or to have cross-border trade involving the United States,” said Joshua Odintz, a partner at Holland & Knight.

Shareholders of publicly traded businesses, like financial analysts, “do not like surprises,” he said.

Tariff Tension

Tariffs are giving company executives the most agita.

An analysis of earnings calls from Bloomberg Intelligence found that companies mentioned the word “tariffs” in calls from November and December alone far more than in the previous 10 months combined.

But Trump hasn’t been clear about when and how he will apply these measures, or if they will be used more as a negotiating tactic.

Trump had pledged he would impose 25% tariffs on Canada and Mexico on the first day of his presidency, but instead pushed that to Feb. 1. The president threatened a 25% tariff on Colombia until the country agreed to accept a US military transport of deported migrants. He’s also ping-ponged on tariffs against China—once promising they’d be as large as 60% but then telling Fox News host Sean Hannity that he would “rather not” impose tariffs on China.

Complicating matters is that tariffs also aren’t one-size-fits all—they could target a certain industry within a country, or apply to a variety of products.

Companies are leaning on internal and external trade experts to help figure out what legal authority the president has to apply tariffs, Odintz said. They’re also enlisting these experts to engage with the US Trade Representative over these measures.

“If we are going to have tariffs, then it’s up to each affected stakeholder to try to engage with USTR to tear back tariffs on certain goods,” he said.

Internal Collaboration

Understanding tariffs is just part of the story. Reacting to them requires an “all-hands-on-deck” approach within a company, practitioners said.

Some companies are reevaluating where they buy their products and where they have overseas operations to limit the effect of tariffs, according to Odintz, Wardell-Johnson, and Brown.

For example, if the Trump administration imposes a tariff on goods from China, companies might shift manufacturing operations to Vietnam or get raw materials there.

Brown said making such moves requires input across multiple departments.

“The tax department won’t be the decisionmaker — it will be some combination of these other groups within the company,” he said in an emailed statement to Bloomberg Tax.

Wardell-Johnson said the decision to move operations can become complicated quickly because they will have to buy and sell assets and negotiate with a new government.

“High volatility is generally very costly,” he said.

But failure to prepare for an uncertain tax environment could put companies at a competitive disadvantage, said Aruna Kalyanam, a global tax policy leader at EY.

Unpreparedness can also risk a company’s reputation “if they are not prepared to defend their operating models,” Kalyanam added.

Global Minimum Tax

The fate of the global minimum levy, which is part of a larger deal brokered by the Organization for Economic Cooperation and Development in 2021, was thrust into uncertainty with Trump’s memo essentially voiding its application in the United States. The memo also directed the Treasury secretary to draft protective measures against any tax it finds to be extraterritorial or discriminatory against US taxpayers.

A separate presidential memo instructed Treasury to double the taxes on citizens and companies of any foreign country that imposes such levies against US taxpayers.

Both memos specifically target the most controversial of the global minimum tax rules, the undertaxed profits rule, according to practitioners.

This is the enforcement rule that allows countries applying it to tax a company if both its parent jurisdiction and its local country aren’t charging a 15% rate. It’s the deterrent “stick” to make the tax effective, according its designers at the OECD.

If the United States retaliates against countries that apply the rule, the global minimum tax framework could collapse, returning participants to the nation-by-nation tax competition that led to the deal.

Brown said companies are looking for countries that can provide a strong level of certainty on their tax positions in the midst of potential chaos.

“There are certainly jurisdictions that want to adopt that mantel,” said Brown, adding that Singapore and Switzerland have made a concerted effort to remain attractive to outside investment.

On top of geopolitical tensions that could affect the global minimum tax framework, countries are also updating legislation to incorporate the new administrative guidance periodically released by the OECD. Some amend their legislation faster than others, creating an incongruence among countries applying the levy.

Klein, the Loyens and Loeff senior associate, said companies are increasingly looking to concentrate their global minimum tax liability in countries such as Netherlands, Ireland, and Luxembourg where they can communicate with taxing authorities and ensure consistent application of the global minimum tax rules.

But even then, nothing is certain.

“It’s kind of becoming a bit tricky because you see so many legislative parts being introduced,” she said, referring to the general tax environment. “So can you really protect yourself in an environment where taxes are kind of like changing quite rapidly?”