A new global deal to levy a near-universal 15% minimum tax on corporate profits could cost tech giants billions every year. Still, lobbies representing business have rallied around the plan, in large part because it is phasing out another kind of tax that technology hates even more.
The big picture: The minimum tax passed a crucial hurdle last week when more than 130 countries reached an agreement at a meeting of the Organization for Economic Co-operation and Development (OECD). It is still awaiting final approval from many stakeholders, including the US Congress.
Driving the news: The Internet Association and the Computer & Communications Industry Association (CCIA) have signaled interim support for the global tax after the deal. “This is an important step towards greater fairness and certainty in the global tax system,” CCIA Vice President Christian Borggreen said in a statement.
The biggest reason for technology Be excited about this tax: Countries that join the program will also be required to waive existing or planned taxes on “digital services” that specifically target technology revenues.
- Dozens of countries around the world have already implemented such taxes or are in the process of implementing them, including France, UK, Italy and Canada.
- Businesses that are unhappy with the prospect of a broad and varied tax regime for digital services see the minimum tax approach as a lesser evil.
Between the lines: Tech companies, like other companies operating globally, often move assets from country to country to minimize their tax obligations.
- This is especially easy for companies that work primarily in software or media, as they don’t deal with factories and physical assets.
- Any rule that applies anywhere in the world reduces the chances of businesses buying lower rates.
- The OECD plan also empowers governments to tax companies wherever they operate, rather than where the company is based.
The plot: The OECD vote looks like a victory attempt for the Biden administration’s multilateral approach to solving the tax problem, unlike the Trump administration’s contempt for this kind of diplomacy.
- This makes it less likely that Republicans in Congress – never big fans of corporate taxation to begin with – will back him.
- Democrats would have the chance to implement it anyway, without bipartisan support, via reconciliation, if they are able to move this messy process forward. Treasury Secretary Janet Yellen said over the weekend that she was “confident” the tax would be included in the reconciliation bill.
Yes, but: Tax lawyers of the caliber these companies can afford are endlessly cunning, and loopholes are written into the laws at the last minute, making the chances that a deal like this will be truly effective hard to assess.