October 18, 2021

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Tech embraces global corporate minimum tax

A new global agreement to levy a near-universal 15% minimum tax on large corporations’ profits could cost tech giants billions each year. Yet lobbies representing the companies have rallied behind the plan, largely because it phases out a different kind of tax that tech dislikes even more.

The big picture: The minimum tax passed a crucial hurdle last week when more than 130 nations reached agreement at an Organization for Economic Cooperation and Development (OECD) meeting. It still awaits final approval from many stakeholders, including the U.S. Congress.

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Driving the news: Both the Internet Association and the Computer & Communications Industry Association (CCIA) signaled tentative support for the global tax after the agreement. “This is an important step towards more fairness and certainty in the global tax system,” CCIA vice president Christian Borggreen said in a statement.

Tech’s biggest reason to be enthusiastic about this tax: Countries that sign on to the scheme will also be required to back away from existing or planned “digital services” taxes that take specific aim at tech revenue.

  • Dozens of countries around the world already have such taxes in place or are in process of implementing them, including France, the U.K., Italy and Canada.

  • Companies that are unhappy at the prospect of a broad and varying digital services tax regime view the minimum tax approach as a lesser evil.

Between the lines: Tech companies, like other corporations operating globally, often move assets from nation to nation to minimize their tax liabilities.

  • That’s especially easy for companies that work primarily in software or media, since they’re not dealing with physical factories and goods.

  • Any rule that takes wide effect around the globe reduces the companies’ chances to shop for lower rates.

  • The OECD plan also empowers governments to tax companies anywhere they do business, rather than just where the firm is based.

The intrigue: The OECD vote looks like a tentative win for the Biden administration’s multilateral approach to resolving the tax issue, in contrast to the Trump administration’s disdain for that kind of diplomacy.

  • That makes it less likely that Republicans in Congress — never big fans of taxing business to begin with — will support it.

  • Democrats would get their chance to enact it anyway, without bipartisan support, via reconciliation, if they’re able to move that messy process forward. Treasury Secretary Janet Yellen said over the weekend 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 crafty, and loopholes get written into laws at the last minute — making the odds that an agreement like this will be truly effective hard to gauge.

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