In the week leading up to the United Nations Public Services Day on 23 June 2025, an unusually wide spectrum of multilateral and unilateral tax developments converged, underscoring the fragility of the post-BEPS international tax order.
• The United Nations discourse on sustainable development funding is pressuring governments to extract more revenue in a fiscally constrained, higher-interest-rate world.
• The Organisation for Economic Co-operation and Development (OECD) faces increasing questions about its capacity to steward the two-pillar solution, as political appetite for a truly multilateral agreement appears to be fading in Washington.
• Simultaneously, the United States Congress is floating highly protectionist measures—nicknamed the ‘Big Beautiful Bill’ and ‘Section 899’—that weaponise the tax code against trading partners that adopt digital services taxes (DSTs) or are deemed “discriminatory.”
• In Asia-Pacific, Malaysia is the latest economy to expand its indirect tax base, signalling a regional shift toward domestic consumption taxes as a hedge against volatile corporate income-tax receipts.
The net effect is a more fragmented global tax landscape in which cross-border investors, multinational enterprises (MNEs) and even governments must price in a higher level of legal and geopolitical uncertainty.
Major Developments Analysis
UN Statement Calls for Overhaul of Global Tax Rules
On the eve of the fourth UN Financing for Development Conference, a coalition of trade-union federations released a stark declaration titled ‘Financing a Public Future’. The statement laments the “chronic under-funding of public services” and urges UN member states to “end the race to the bottom on corporate taxation” by overhauling global tax rules in favour of a more unitary, formulary approach.
Education International argues that current OECD-led initiatives are “insufficiently ambitious” and overly deferential to large capital-exporting economies.
Implications: Although the statement carries no legal force, its timing—days before ministers gather in Addis Ababa—adds political momentum to calls for an intergovernmental UN tax body, a proposal that could dilute OECD influence and reshape dispute-resolution mechanisms.
OECD Inventory of Export Restrictions on Raw Materials
The OECD’s 2025 Inventory of Export Restrictions on Industrial Raw Materials, released in partnership with the Hinrich Foundation, documents a 36 % increase in quantitative export controls since 2020.
Hinrich Foundation associates these controls with a rise in resource-nationalist measures, including special mining levies and windfall-profit taxes.
Implications: Tax policy is being deployed as a non-tariff barrier. Countries rich in critical minerals—lithium, rare-earth elements—are implementing extraction taxes that interact awkwardly with existing bilateral investment treaties. For MNEs, modelling after-tax project cash flows now requires stochastic analysis of both export bans and variable tax surcharges.
OECD Official Casts Doubt on U.S. Pillar 2 Alignment
Speaking at an OECD webinar on 20 June 2025, a senior policy advisor questioned whether existing U.S. rules—specifically the Global Intangible Low-Taxed Income (GILTI) regime—would satisfy the 15 % global minimum tax under Pillar 2.
Law360 reports that the official hinted the United States might be subject to top-up taxes in foreign jurisdictions if it does not legislate conforming Income Inclusion Rules (IIRs) by 2026.
Implications: U.S. multinationals face the prospect of dual compliance frameworks—GILTI for domestic purposes and Qualified Domestic Minimum Top-Up Taxes (QDMTTs) abroad—creating potential double-taxation and competitive distortions. Treasury’s regulatory capacity will be tested amid a crowded Congressional calendar.
Trump’s ‘Big Beautiful Bill’ and Australian Tax Exposure
The opposition-led U.S. House tax package—branded the ‘Big Beautiful Bill’—contains clauses that would deny certain treaty benefits and impose a 10 % surcharge on deductible payments from U.S. entities to residents of jurisdictions that levy a DST.
Accounting Times notes that Australia, which reinstated its own DST in 2024, could see higher withholding taxes on royalties and technical-service payments, raising the effective tax rate on Australian multinationals with U.S. operations by up to 7 percentage points.
Implications: The move re-opens the spectre of Section 301 trade retaliation but through a tax lens, complicating Double Tax Agreement (DTA) negotiations and elevating treaty override risk. Transfer-pricing models predicated on arm’s-length payments may require immediate overhaul.
Section 899: Tax Weaponisation of Capital Markets
Complementing the above bill, a standalone proposal—Section 899—targets portfolio investors from “discriminatory” jurisdictions.
Atlantic Council details a sliding-scale withholding tax of up to 30 % on dividends and interest paid to affected investors, revocable only if the foreign government repeals the offending tax measure.
Implications: This represents an unprecedented alignment of tax policy with foreign-policy objectives. Should Section 899 become law, central banks and sovereign wealth funds may rebalance away from U.S. treasuries, pushing up yields and weakening the dollar, with knock-on effects for global cost of capital.
Malaysia’s SST Expansion: Regional Consumption-Tax Trendsetter
Effective 1 July 2025, Malaysia will expand its Sales and Service Tax (SST) regime by introducing a two-tier structure: a 6 % general rate and a 10 % ‘luxury tier’ on high-value consumer goods.
ASEAN Briefing explains that the government expects to raise RM 8 billion (USD 1.7 billion) annually, offsetting phased-out oil-and-gas revenues.
Implications: Importers and retailers must now contend with a more granular HS-code mapping exercise and the potential for cascading tax where service components overlap with goods. Regional peers—including Thailand and Indonesia—are monitoring the rollout as they contemplate VAT-base broadening.
Market Analysis and Sector Impact
- Multinational Tech Firms: The cumulative effect of Pillar 2 uncertainty and DST-linked retaliation creates a bifurcated compliance environment. Firms may need to re-evaluate IP holding-company locations and consider the reliability of treaty networks in tax-planning models.
- Extractive Industries: Export restrictions combined with new mining levies increase the marginal tax-inclusive cost of capital. Lenders are demanding higher internal rates of return (IRRs) or political-risk insurance, which could slow the energy transition.
- Asset Managers & Sovereign Funds: Section 899 risks triggering a sell-off in U.S. debt markets. Portfolio diversification toward euro- or renminbi-denominated assets may accelerate, affecting currency hedging strategies.
- SMEs in Asia-Pacific: Malaysia’s SST expansion signals a move toward consumption taxes that could spread regionally. SMEs reliant on imported inputs must upgrade ERP systems to handle multi-rate indirect taxes or face penalty risk.
- Public-Sector Service Providers: The UN statement adds moral urgency for governments to ring-fence revenue for health and education, potentially leading to earmarked taxes or surcharges that affect contractor margin models.
Looking Ahead: Future Implications
• UN vs. OECD Governance Clash: If momentum builds for a UN-based tax convention, we could see a dual-track standard-setting environment by 2028, complicating mutual-agreement procedures.
• Pillar 2 Implementation Gap: Without U.S. legislative alignment by 2026, the EU and major economies are poised to levy top-up taxes on U.S. MNE subsidiaries, heightening the risk of trade disputes filed at the WTO or under bilateral investment treaties.
• Retaliatory Tax Spiral: The confluence of the Big Beautiful Bill and Section 899 may provoke counter-retaliation, such as surtaxes on U.S. digital services or financial transactions, further destabilising treaty relations.
• Rise of Destination-Based Taxation: Asia-Pacific’s pivot toward indirect taxes suggests a long-term structural shift where consumption, rather than income, becomes the dominant tax base. This trend aligns with e-invoicing and real-time VAT collection advances.
• Capital-Market Repricing: Should Section 899 advance, bond markets may price in a geopolitical risk premium, altering corporate treasury strategies and FX exposures worldwide.
Key Takeaways for Stakeholders
• Treasury & Tax Directors: Conduct jurisdictional exposure mapping for potential top-up taxes under Pillar 2, including readiness for QDMTT compliance by 2026.
• Cross-Border Investors: Hedge U.S. fixed-income positions against possible Section 899-induced yield spikes; consider diversifying into jurisdictions with stable treaty networks.
• Digital Economy Firms: Scenario-test the impact of DST-related U.S. surcharges on royalty and service-fee flows; evaluate supply-chain relocations to neutral jurisdictions.
• Asian Importers/Retailers: Upgrade ERP and invoicing systems to accommodate Malaysia-style multi-tier SST/VAT regimes likely to proliferate in the region.
• Policy Makers: Balance revenue imperatives with treaty integrity; avoid unilateral measures that could trigger cascading retaliation and erode investor confidence.
• Compliance Deadlines:
– 1 July 2025: Malaysia’s SST expansion goes live.
– 31 Dec 2025: First fiscal year for which many Pillar 2 rules apply.
– Q1 2026 (tentative): Earliest effective date for U.S. Section 899 withholding, if enacted.
Prepared by MyTax - mytax.com.ng