Trump threatens retaliatory taxes using old US tax code provision
US President Donald Trump has expressed dissatisfaction with the tax policies of certain foreign countries regarding American citizens and companies. He is prepared to enact retaliatory measures, threatening to double taxes for these nations' own citizens and businesses.
According to a 90-year-old provision of the US tax code, Section 891, Trump does have the ability to take such unilateral action. This provision is outlined in an executive memo signed on January 20, which details his "America First Trade Policy." In the memo, Trump instructed the US Treasury to:
- Investigate if any foreign country imposes discriminatory or extraterritorial taxes on United States citizens or corporations under Section 891 of Title 26, United States Code.
Section 891, though brief, provides sweeping powers to the president. Should he determine that US citizens or corporations are facing "discriminatory or extraterritorial taxes," he is required to make a public proclamation. This leads to an automatic doubling of US income tax rates for citizens or corporations of the offending country.
The taxation imposed can reach up to 80% of the US taxable income for the individual or business. However, the proclamation can be revoked should the foreign country amend its tax practices.
Historically, Section 891 was introduced during a period of heightened tax disputes and economic difficulty, being signed into law by President Franklin D. Roosevelt in 1934 amid a disagreement between the US and France over taxation of US companies operating abroad.
That tax dispute involved attempts by France to impose extra taxes on US businesses, leading to a significant economic tension that ultimately resulted in legislative action taken by the US Congress. Although Section 891 is a powerful tool, it has never been invoked until now.
Modern discussions around Section 891 have emerged as Trump targets the OECD global tax negotiations, particularly following Australia's imposition of a global minimum tax. The ongoing discussions regarding digital taxation echo historical disputes, as Trump weighs whether recent tax practices—such as proposed levies on digital platforms in Australia—could be viewed as discriminatory against US interests.
