For years, the European Union (EU) and the Organization for Economic Co-operation and Development (OECD) have been working toward a global minimum tax to stem the loss of offshore tax dollars related to multinational enterprise (MNE). The U.S. has now withdrawn from commitments to that effort.
Globally, tax dollars owed by MNEs and high-asset individuals disappear each year due to tax structures that flow income away from the country where the income was generated.
Recently, the Tax Justice Network released its annual report looking at dollars lost to offshore tax havens and jurisdictions that market their regions as tax-free or close to it. According to the report, approximately $492 billion is currently lost each year, depriving governments of needed tax revenue.
In 2017, Amazon, fielding rumors of offshore tax evasion, received a $273M bill by the EU due to the purportedly sketchy relationship between Luxembourg and Amazon. In court and on appeal, the European Court of Justice handed a win to Amazon.
EU Initiative to Address Offshore Tax Avoidance—and Tax Evasion
The OECD has developed a Two-Pillar Solution to address Base Erosion and Profit Shifting (BEPS). This focuses on MNE activities that move profits from higher tax locations to foreign banks and offshore accounts that offer lower interest rates through a variety of means. The two pillars of the program include rules to avoid double taxation and regulations that require MNEs to pay a 15 percent tax rate. That rate applies either where they operate, or if it is less than 15 percent, the entity would pay a top-up tax to the country of its home office.
With approximately 140 countries signed on to the deal, the OECD initiative provides more flexibility for sharing tax rights than a flat digital services tax.
U.S. Opts Out of OECD by Executive Order
On Jan. 20, 2025, the White House issued a memorandum that declares the OECD solution has no bearing or effect in the U.S. The memo notes the OECD initiative takes “extraterritorial jurisdiction over American income but also limits our nation’s ability to enact tax policies that serve the interests of American businesses and workers.”
Given the withdrawal of the U.S. from the Two-Pillar Solution, countries may return to assessing digital taxes on MNEs operating in their countries. Additionally, given the frequency in which the Trump administration wields talk of tariffs, it is possible the administration will assess tariffs on countries attempting to collect those taxes due.
Navigating Offshore Tax Complexities with Expert Guidance
The landscape of international tax law is constantly shifting, especially with the U.S. withdrawing from the OECD's global tax initiative. Understanding the fine line between tax avoidance and tax evasion is essential—structuring your finances wisely can reduce tax liabilities, but missteps can lead to serious consequences.
If you are interested in the potential and pitfalls of a foreign bank account, speak with our experienced offshore tax attorneys. Remember, there is a difference between tax evasion and tax avoidance—avoiding taxes you do not need to pay can boost your bottom line. Call us at 440-250-9709 or set up a consultation to discuss your questions.
For a deeper dive into offshore tax planning, common pitfalls, and how to stay compliant while maximizing financial benefits, download our free eBook, Offshore Tax Matters Explained.
