Trumpian Neomercantilism, European Fiscal Capacity and the Global Minimum Tax

Abstract This paper explores the second Trump administration’s withdrawal from the Global Minimum Tax (GMT) and the implications for the fiscal capacity of the EU and its member states. Agreed in 2021, the GMT seeks to limit profit-shifting by multinational corporations by ensuring they pay at least 15 percent in taxes no matter where they declare their profits. The GMT’s central features, the Income Inclusion Rule (IIR) and Undertaxed Payments Rule (UTPR), largely mirror provisions included in the US tax code by the first Trump administration. Following the neomercantilist turn of the second Trump administration, however, the US is pressuring the EU and OECD to abandon the UTPR. Given the urgent need to replace US security capabilities in Europe, modernize creaking infrastructure, and invest in the green transition, the paper argues that defending the GMT and the UTPR rule is crucial to protecting the EU’s fiscal capacity and sovereignty.