The Trump administration has issued an executive order regarding the global minimum tax agreement, known as Pillar Two. This agreement aims to ensure that multinational corporations pay a minimum of 15 percent in income tax. The executive order outlines two primary elements: first, that policy promises made by the Biden administration's Treasury officials are ineffective unless supported by US Congress laws; second, that the US may retaliate against extraterritorial taxes.

The relationship between the United States and the Organisation for Economic Co-operation and Development (OECD) on this tax deal is intricate. Here are five key points to understand:

1. The US tax code does not align with the OECD's tax base, and only Congress can make changes. Currently, US tax rates exceed the OECD's minimum requirement with a domestic rate of 21 percent and an upcoming increase in international income effective tax rate to 16.4 percent in 2026. However, differences exist in areas such as research and development expenditures and international income grouping.

2. The US tax code is tougher than required by Pillar Two. While European countries often have higher overall taxes through value-added taxes, the US corporate tax regime exceeds Pillar Two's requirements for avoiding top-up taxes.

3. Congress has not enacted major legislation supporting the agreement. Although encouraged by the Biden administration, discrepancies remain unaddressed by Congress.

4. The agreement presents potential downsides for the US, including reduced income for shareholders due to increased foreign taxes on US corporations and a possible loss of fiscal sovereignty.

5. The US could retaliate against enforcement mechanisms like the undertaxed profits rule (UTPR), which allows countries to charge extra taxes on corporations paying less than 15 percent in other jurisdictions.

The Trump administration’s statement leaves open future Congressional action aligning more closely with Pillar Two but emphasizes outcomes over processes while acknowledging modest differences between US and OECD approaches.