Multinational corporate tax departments face the dual challenge of navigating complex international tax policies and responding to evolving trade tariffs; as attendees at a recent conference suggest, strategic scenario planning and cross-departmental collaboration are essential
WASHINGTON, DC — For the in-house tax departments of multinational organizations, the complexity of navigating tax policies across the jurisdictions in which their companies perform business is nothing new. And it can be said that department leaders’ concerns around keeping up with regulations have been a longstanding and continuous challenge, according to the Thomson Reuters Institute’s State of the Corporate Tax Department Report.
On April 2, President Donald J. Trump announced the most sweeping tariffs since the 1030s, impacting all United States trading partners. Now, as the world adjusts amid tariff retaliation likely coming from several countries, the issues of trade, tariffs, and their implication on corporate tax departments will continue to be to have a significant impact in the coming months and years.
Yet, even before this announcement, tariffs were the topic of numerous discussions in several sessions at the recent Tax Executives Institute 2025 Midyear Conference. Indeed, the ongoing proposed tariffs among the United States and some of its key trading partners now have multinational companies scrambling at a heightened degree. In this environment, corporate tax leaders are not only seeking to understand how their businesses should respond, but also how to remain in compliance and what new strategies are needed to optimize their businesses’ tax liabilities while simultaneously enhancing operational efficiency.
Foreign tax policies that may be impacted due to tariffs
There are several tax policies that are likely to be strongly impacted by the ongoing tariff dispute, including:
Pillar 1 and digital services taxes
An increasingly central component of the Organisation for Economic Co-operation and Development’s (OECD’s) Pillar 1 is the digital services taxes. The OECD in partnership with the G20 formed a coalition to create a single set of agreed-upon international tax rules to prevent businesses from shifting their profits to certain tax jurisdictions in efforts to minimize tax liabilities. The OECD and G20 felt the rule was needed given the global digital economy creating a framework for how taxes can be assessed beyond the traditional systems (which typically involved an organization paying taxes in those jurisdictions in which it had a physical presence). In 2017, the European Commission lead the charge with its introduction of digital services taxes marking a pivotal shift in how digital revenue is taxed.
As of 2024, there are about 20 countries that have implemented digital services taxes. On February 21, President Donald J. Trump issued a memorandum signaling his Administration’s plan to “take action regarding tax and regulatory measures affecting US digital service providers.” As the Trump considers extending tariffs to the European Union, some EU member nations are reconsidering their stance on digital services taxes on US-based tech companies. India recently passed a financial bill, which went into effect April 1, that removes their digital services taxes.
Pillar 2
A key part of the OECD’s Global Anti-Base Erosion Model Rules (GloBE), Pillar 2, was agreed to by more than 135 jurisdictions. In 2021, these jurisdictions pledged to update and modernize their international tax systems to better reflect a global digital economy, including establishing a global minimum tax. On January 20, on his first day in office of his second term, President Trump withdrew the US from the OECD’s Global Tax Deal and suggested imposing retaliatory taxes or tariffs on any countries that impose a global minimum tax on US businesses.
US responses: Section 899 and tariffs
In response to what’s perceived as international tax challenges, the US has proposed Section 899 under H.R. 591 (the Defending American Jobs and Investment Act), which imposes additional taxes on the US income of foreign individuals and entities from jurisdictions that have extraterritorial or discriminatory taxes, such as the OECD’s Pillar 2 undertaxed profits rule or digital services taxes. The tax would increase by 5% each year for four years, culminating in a 20% additional tax annually.
Furthermore, Section 899 includes treaty override language, which would deny these foreign entities and individuals the benefit of reduced withholding taxes under any treaty with the United States. This provision is intended to reinforce the OECD Global Tax Deal Executive Order and counteract foreign measures perceived as undermining US economic interests.
What should corporate tax departments do?
There are several actions that corporate tax departments can take now to help them navigate the current environment, including:
Scenario planning and strategic decision-making
For corporate tax departments, tax planning and tax modeling has always been an essential component of determining their companies’ financial strategy. With additional considerations of tariff and trade wars, that planning becomes even more essential. In-house tax departments now must be able to fine tune their scenario planning to not only anticipate but quickly pivot when new information becomes available.
Departments also will need to have several models that can be changed and adjusted so that a clear picture of how their businesses may mitigate the impact of tariffs on operations. For example, understanding what counts as manufacturing rather than assembly, and where these activities take place, can influence tariff rates and eligibility for trade agreements. Tax professionals must weigh the trade-offs between income tax and tariffs, considering the overall tax burden and operational efficiency of their companies.
Collaboration and strategic alignment
Corporate tax departments must collaborate with various business units within their organizations to ensure strategic alignment in managing trade and tariffs. This involves working with supply chain teams to optimize classifications and origins, exploring opportunities for tariff reduction, and understanding the implications of manufacturing and assembly decisions.
As businesses around the globe navigate what some might say is a new era in trade and tariffs, it is the corporate tax departments that will play a pivotal role in helping businesses manage the impact of trade and tariffs on their operations. Department leaders who are able to leverage their people and technology to keep up with the rapid changes will be able to optimize tax strategies and ensure compliance in the jurisdiction in which their businesses operate.
You can download a copy of the Thomson Reuters Institute’s 2024 State of the Corporate Tax Department report
