The sweeping policy legislation that Republicans are pushing through Congress is poised to reignite international tax and trade wars that have been on hiatus as policymakers around the world grappled with how to overhaul the global tax system.
Since taking office, President Trump has made clear that he wanted nothing to do with a 2021 deal brokered by the Biden administration that aimed to rewrite the rules of how the world’s largest companies would be taxed around the globe. That deal, which was agreed to by the Group of 7 countries, created a new global minimum tax rate of at least 15 percent that companies would have to pay, regardless of where they locate their headquarters.
House Republicans are now pressing ahead with a bill that would essentially punish companies from those countries that move ahead with the global minimum tax. The legislation would substantially increase the tax bills for foreign companies that operate in the United States if they are based in countries that try to enforce the 2021 agreement and collect higher taxes from American multinational firms.
A measure tucked in the One Big Beautiful Bill Act would increase tax rates on such companies by as much as 20 percentage points over time if their headquarters are in “discriminatory foreign countries.” The bill defines “unfair foreign taxes” broadly, giving the United States discretion over how and when it could impose new taxes on foreign firms.
The looming tax fight is expected to be a topic of discussion as finance ministers from the Group of 7 nations gather in Canada for three days of meetings this week. The issue had been simmering in the background as officials grappled with the fallout from Mr. Trump’s trade war. If Congress passes the legislation it is likely to become a more prominent source of tension between the United States and other nations.
“Every country is sovereign in how they determine what’s in their best interest and their tax policy,” François-Philippe Champagne, the Canadian finance minister, said on Tuesday when asked about U.S. concerns over Canada’s digital services taxes and the potential for retaliation.
A person briefed on Treasury Secretary Scott Bessent’s priorities for the G7 meetings said that Washington would continue to voice its concerns about the treatment of American companies in the tax agreement if the matter arises.
In Mr. Trump’s first term, his administration initiated trade investigations into nine countries and the European Union in preparation to retaliate over their plans to impose so-called digital services taxes on economic activity generated online.
The Biden administration took a more diplomatic approach, leading negotiations through the Organization for Economic Cooperation and Development that culminated in a tax deal that was struck between more than 140 countries in 2021. The agreement intended to increase taxes substantially on many large corporations, halting a so-called “race to the bottom” on business taxation and to end an international fight over how big technology companies like Google are taxed around the world.
The two-pronged approach entailed countries enacting a 15 percent minimum tax so that companies would pay at least that much on their global profits no matter where they set their headquarters. It was also supposed to allow governments to tax the world’s largest and most profitable firms by where their goods and services are sold, instead of by where they are based.
But technical disputes over the deal delayed it from being fully enacted and U.S. lawmakers ultimately refused to comply with the terms of the pact, which would have required to Congress increase the tax rate that American companies pay on their foreign earnings to at least 15 percent.
Republicans in Congress have for years assailed the agreement for raising taxes and giving other countries more power over American firms.
“They hijacked the O.E.C.D. negotiations to surrender our tax base to Europe and provide China with an unfair advantage,” Representative Jason Smith, the Republican chairman of the House Ways and Means Committee, said in February.
The new legislation would largely cripple the deal by punishing companies from countries that try to use the agreement’s enforcement rules and charge American companies higher taxes.
“These lawmakers want to tear this up by root and branch,” said Daniel Bunn, president of the Tax Foundation, a research center that generally favors lower taxes.
European Union countries have given the United States a reprieve from the tax deal while its future remained in limbo. It is possible the exemption could be extended out of concern that Mr. Trump will take additional punitive measures to retaliate.
Negotiations over digital services taxes could also be included in the trade negotiations that the Trump administration is holding with dozens of countries. However, the deal recently struck with the United Kingdom did not include any changes to its digital services tax.
“Passing the retaliatory provision will clearly complicate the tax and trade tension with Europe,” said Itai Grinberg, a Georgetown University law professor who was a lead international tax negotiator in the Biden administration.
Mr. Grinberg suggested that U.S. states could consider raising their corporate tax rates to comply with the global deal so that foreign countries cannot attempt to collect so-called “top up taxes” on the foreign earnings of American companies.
It is not clear if Senate Republicans will push for changes to House measures on taxing foreign firms. However, tax experts noted that if the bill becomes law it could give the Treasury Department less leeway in international tax negotiations and potentially scare off foreign investment.
“The way it is written doesn’t give a lot of room for compromise,” said Dustin Stamper, managing director for legislative affairs at the tax firm BDO. “If they were to take effect and countries aren’t able to immediately amend their own taxes laws, it would potentially chill inbound investment.”
There are also questions about whether the legislation would violate international tax treaties, and how it would be applied to foreign individuals in the United States. Other countries could also opt against capitulating to Washington and instead retaliate against American companies with new tax measures.
“What it would actually do is to create a new front in the U.S. tariff war with its closest economic partners, extending that to taxes and investment,” said Chye-Ching Huang, executive director of the Tax Law Center at N.Y.U. School of Law. “And just like the tariff war, it’s U.S. consumers, workers and businesses that will be hurt.”
Alan Rappeport is an economic policy reporter for The Times, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters.
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