Efforts to establish a coordinated global tax regime aimed at tech giants and ultra-wealthy individuals are facing significant challenges. This comes as US President Donald Trump has pulled back his support and is now threatening new tariffs, reigniting transatlantic tensions and creating uncertainty over years of negotiations designed to curb tax avoidance and close loopholes exploited by multinational corporations.

On February 21, Trump issued a formal memo warning that his administration would retaliate against any country that imposes taxes or fines on US tech firms deemed discriminatory or disproportionate. He emphasized that such measures would be considered a direct attack on American businesses, and he specifically threatened to implement tariffs and other trade measures to protect American firms from what he considers unfair treatment.

This latest move harkens back to disputes from Trump's first term, during which he threatened tariffs on French wine and cheese in retaliation for France's introduction of a digital services tax in 2019 that targeted US companies. Since that time, at least seven other countries, including Italy, Spain, Austria, and India, have also implemented similar taxes, further complicating the international tax landscape.

In 2023, France collected approximately 780 million from its digital services tax, demonstrating the significant financial implications of these policies. In response to the stalled negotiations with the US, the European Union is contemplating a bloc-wide digital tax, particularly in light of Trumps recent proposal to impose a 20 percent tariff on goods imported from EU nations. Such a tax could have major ramifications for EU member states and their economic relations with the US.

The UK, which currently raises around 800 million annually from its digital levy, appears to be open to revisiting its tax structure. UK Trade Secretary Jonathan Reynolds recently remarked that the digital tax is not set in stone and could be negotiated down as London seeks to strengthen its trade relationship with Washington.

In 2021, nearly 140 countries reached a landmark agreement under the auspices of the Organisation for Economic Co-operation and Development (OECD) to reform international corporate taxation. This agreement is structured around two main pillars. The first pillar aims to tax profits in the location where they are generated, with a particular focus on digital firms. The second pillar establishes a global minimum corporate tax rate of 15 percent.

However, while about 60 countries have now adopted the minimum tax, including Brazil, Japan, Canada, Switzerland, and all EU members, the implementation of the first pillar has seen little progress. Daniel Bunn from the US-based Tax Foundation noted that discussions on implementing these measures have stalled, even under President Joe Bidens administration.

Franco-American economist Gabriel Zucman has expressed serious concerns regarding the future of this agreement, cautioning that without strong enforcement mechanisms, the agreement could ultimately collapse. Zucman stated, If the EU and other countries give up and allow American multinationals to exempt themselves, it will unfortunately spell the end of this very important agreement, highlighting the fragile nature of international cooperation on tax reform.

Meanwhile, a parallel initiative aimed at imposing a wealth tax on billionaires has also lost momentum. During Brazils presidency of the G20, a proposal for a two percent minimum annual tax on individuals with assets exceeding $1 billion was put forth. This policy, if adopted globally, was anticipated to generate around $250 billion per year. Unfortunately, the United States has not shown support for this initiative. President Biden has remained silent on the issue, and with Trump back in the White House, prospects for US support appear to be dim.

The US is home to nearly one-third of the worlds billionaires, a figure that surpasses the combined total of billionaires in China, India, and Germany, according to Forbes. This concentration of wealth in the US complicates international efforts to address issues of inequality and tax evasion.

At a recent tax conference held in Paris, economist Thomas Piketty emphasized the need for countries to take independent action if multilateral coordination fails. He stated, We need individual countries to act as soon as they can. History suggests that once you have a couple of countries adopt a reform, it becomes a new standard, advocating for proactive measures to tackle these pressing fiscal challenges.