Donald Trump’s second term in the White House threatens to trigger global tax spats, with experts expressing concern over Republican pledges to punish countries that apply more taxes to those US multinational.

The head of tax at a large multinational told the Financial Times that 2025 “could be the year that everyone goes to hell in a handbasket and businesses are caught in the middle”.

Alan McLean, chair of Business at the OECD tax committee, which represents business interests in discussions among the Paris-based group of rich economies, said the imposition of tariffs in response to global measures to taxes “strain economic growth by increasing operating costs for businesses. and increasing consumer prices”.

The disputes point to frustration among Republicans about a critical element of a global tax treaty agreed to by OECD which starting this year will allow other countries to charge top-up taxes on US multinationals.

Trumpa self-described “tariff man”, often threatening to use tariffs to ensure that the interests of US businesses and households are protected. Since winning the US election, the president-elect has threatened to tear up a free trade agreement with Canada and Mexico and impose a 25 percent tariff on imports from its neighbors.

Tax experts believe in The EU is in the crosshairs by Republicans, who branded a key part of the OECD deal, known as the undertaxed profits rule and commonly referred to as the UTPR, as “discriminatory”.

The rule allows countries to increase the tax on a local subsidiary of a multinational group if the multinational pays less than 15 percent of the corporate tax in any other jurisdiction. The rule would mean that other countries would be able to charge top-up taxes on US companies.

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

The EU implemented the measure under a directive in 2022, but some experts believe the bloc could be compromised by Trump on its implementation in return for favorable treatment of its exports.

The EU has a trade surplus with the US of €158bn, according to figures from the European Commission.

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

However, some say a change is unlikely because it would require agreement from all 27 member states.

“(The UTPR is) widely implemented, a powerful bargaining chip, and not easily reversed,” said Rasmus Corlin Christensen, an international tax researcher at Copenhagen Business School.

As of 2021, more than 140 countries are working with the OECD to implement the landmark tax treaty.

The agreement, in which the countries agreed in principle, consists of two “pillars”. The first seeks to force the world’s largest multinationals to declare income and pay more in the countries where they do business. The second introduced a 15 percent global minimum effective corporate tax rate, designed to limit multinationals that shift residences to pay less tax on their income.

Influential Republican congressman Jason Smith in 2023 described the global OECD deal as “Biden’s global tax fight”.

Smith created a bill to increase the income tax rate of companies headquartered in jurisdictions with “extraterritorial and discriminatory taxes”, against US multinationals, including the UTPR. The bill has not been implemented but it could be revived under Trump’s presidency.

It’s not a “heavy lift” for a Republican administration, which controls all branches of government, to implement it, Kalyanam said.

Smith’s opposition to the OECD agreement is shared by Republican senators. A senior congressional aide echoed Smith’s language and said the UTPR rule was widely seen by Republican lawmakers as “discriminatory” and “extraterritorial”.

“Overall, Senate Republicans feel the tax deal undermines US interests,” the aide said.

The question of whether a tax war could arise depends on whether and how other countries seek to implement the UTPR rule.

Currently, the UTPR is enacted in jurisdictions including Australia, Canada, Japan, New Zealand, Norway, South Korea, Turkey and the UK, along with the EU.

However, some OECD countries considering US concerns have introduced a “temporary safe harbor”. This delays the date that the UTPR will apply until 2026 for countries with a statutory corporate tax rate of more than 20 percent. The US has a rate of 21 percent – although Trump has proposed cutting it to just 15 percent for domestic manufacturers.

Not all jurisdictions that implement the UTPR introduce a safe harbor clause.

“That causes a lot of hand-wringing among companies,” said Danielle Rolfes, head of KPMG’s Washington national tax practice.

Some hope to find a compromise between the countries that will also avoid a tax war.

“There is some kind of deal. That’s what Trump wants to do. It will be a pain down the road though,” said the multinational tax head.

One way that countries may decide to avoid the potential problem of US multinationals subject to the UTPR is to further delay the date that the rule begins to be enforced past 2026.

Grant Wardell-Johnson, global tax policy leader at KPMG International, said: “I suspect they will close it down the road and the UTPR safe harbor will expand. A lot of countries don’t want to fight US politics in that regard.