On January 20, 2025, the White House issued a memorandum disavowing the OECD Global Tax Deal, stating that the agreement has “no force or effect” in the United States unless Congress enacts it into law.

This policy shift signals a major change in U.S. tax policy and raises questions about how institutional investors, private equity funds, and multinational businesses should approach cross-border tax planning.

While the full impact of this decision is still unfolding, the withdrawal could lead to:

• Increased tax uncertainty for global investors

• New unilateral tax measures from foreign jurisdictions

• Potential retaliatory actions from the U.S.

This article breaks down the key takeaways for institutional investors and fund managers navigating these changes.

What Was the OECD Global Tax Deal?

The OECD Global Tax Deal was developed to modernize international tax rules and prevent base erosion and profit shifting (BEPS) by multinational corporations.

It introduced two key measures:

1. Pillar One – Taxing Rights Reallocation

• Required large multinational corporations to pay taxes where they generate revenue, even if they have no physical presence there.

2. Pillar Two – 15% Global Minimum Tax

• Introduced a global minimum corporate tax rate of 15% to prevent companies from shifting profits to low-tax jurisdictions.

The U.S. played a major role in negotiating this agreement, but the recent policy reversal undermines global tax coordination and raises new risks for cross-border investors.

Key Implications for Institutional Investors and Fund Managers

1. Increased Tax Fragmentation Across Jurisdictions

Without U.S. participation, other jurisdictions—particularly in Europe, Asia, and emerging markets—may move forward with their own tax policies targeting U.S.-based funds and multinationals.

• Countries may impose unilateral tax measures, such as “top-up taxes” or digital services taxes (DSTs), leading to higher compliance costs for investors.

• Lack of coordination could result in conflicting tax rules, making cross-border fund structuring more complex.

For institutional investors with global portfolios, these shifts could impact fund performance and tax efficiency.

2. Heightened Scrutiny of U.S. Investors in Foreign Markets

The withdrawal weakens U.S. influence over global tax policy, which could lead to stricter tax enforcement on U.S. investors abroad.

• Withholding taxes and local compliance burdens could increase for U.S.-based LPs investing in foreign funds.

• Foreign tax authorities may reassess tax treaty benefits, potentially leading to double taxation risks.

Emerging markets investors and cross-border fund managers should monitor tax developments carefully to mitigate exposure.

3. Implications for Private Equity, Venture Capital, and Alternative Fund Structures

For private equity and venture capital funds, uncertainty surrounding global tax rules could impact:

• The attractiveness of U.S. fund structures for international LPs.

• The tax efficiency of offshore fund jurisdictions, such as the Cayman Islands, Luxembourg, and Ireland.

• The treatment of carried interest and fund manager compensation models.

Fund sponsors should reassess tax-efficient fund structuring strategies in light of these potential shifts.

4. Potential U.S. Retaliatory Measures

The White House memorandum instructs the U.S. Treasury to assess foreign tax policies and consider protective measures against countries that:

• Impose “disproportionate” tax rules on U.S. companies.

• Implement the OECD minimum tax in a way that impacts U.S. multinationals.

Possible U.S. responses include:

• Stricter foreign tax credit rules, making it harder for U.S. investors to offset foreign taxes.

• Reevaluating tax treaties with certain jurisdictions, potentially increasing the tax burden for U.S.-based funds.

• Tariffs or other trade measures targeting jurisdictions that enforce OECD-aligned tax policies.

Investors with cross-border exposure should prepare for potential shifts in U.S. tax enforcement strategies.

What Investors and Fund Managers Should Do Now

To stay ahead of these changes, institutional investors, private equity firms, and fund managers should consider:

✔ Reviewing cross-border tax exposure – Identify potential vulnerabilities in existing fund structures.
✔ Reevaluating fund domiciliation strategies – Consider whether certain jurisdictions offer greater tax stability and treaty benefits.
✔ Optimizing treaty utilization – Work with tax advisors to ensure maximum efficiency.
✔ Monitoring policy developments – Stay informed on how U.S. and foreign tax laws are evolving.

Final Thoughts: The Future of International Tax Planning

The U.S. withdrawal from the OECD Global Tax Deal marks a turning point in international tax policy.

For investors and fund managers, this decision highlights the growing complexity of global tax compliance and the importance of strategic tax planning.

While the long-term impact remains uncertain, investors should expect heightened tax fragmentation, new compliance burdens, and potential shifts in fund structuring best practices.

Stay Informed on Global Tax Developments

At Lazarus, we continue to monitor global tax policy to provide insights on fund structuring, investor representation, and international tax strategy.

Would you like to discuss how these changes could impact your investment strategy? Subscribe for updates on evolving tax regulations and their impact on fund managers and institutional investors.