The average corporate tax rate, in case you're wondering, was 23.6% in 2021, according to KPMG. How Would the Global Tax Plan Work?
The global tax plan that countries agreed to would play out in two phases. The first phase would involve reallocating roughly $125 billion in corporate profits from ~100 of the biggest and most profitable multinational corporations in the world to the jurisdictions where their customers are located. This means no stuffing revenues on a small island of 50k citizens — a preferred tactic among technology companies whose product, oftentimes used by hundreds of millions of people in America or Europe, can be licensed from anywhere in the world. But what shape this phase of reallocation ultimately takes, and how effectively it will keep profits where they're earned, will depend on further negotiations. The second phase, which the OECD says will allow world governments to collect $150 billion in new annual tax revenues, will require countries to enact a minimum 15% tax rate on big companies with a turnover above 750 million euros. So far, at least 141 countries and jurisdictions representing about 90% of the global economy have joined, including initial holdouts Ireland, Hungary, Cyprus, Kenya, Nigeria, Pakistan, and Sri Lanka. But it will be up to every single one of them to legislate or mandate the 15% tax floor on home soil… which brings us to that gigantic hurdle. Will This Really Ever Happen?
Ratifying a massive international tax proposal that could reshape the global economy isn't exactly a walk in the park. To no surprise, there are already continent-sized hurdles to getting the deal done. In a May speech to the Brussels Economic Forum, US Treasury Secretary Janet Yellen said her country and the European Union "must show leadership by expeditiously implementing the global minimum tax in our domestic laws." The original agreement dictated that countries should aim to have their end of the bargain enshrined by 2023, although a controversial 10-year grace period for implementation was slapped on to satisfy objections (global charity Oxfam called it a "mockery of fairness"). So far, the US and EU haven't exactly been leaders on that front: - In the EU, Poland has blocked a law to enshrine the agreement, demanding that there be a separately negotiated global levy on the 100 biggest companies in the world in addition to the 15% tax rate.
- In the US, meanwhile, Senate Democrats have failed to agree on spending proposals for energy, drug prices, and other policies that are meant to be part of a bill to accompany the tax changes. That's before even factoring in likely steadfast Republican opposition.
There are, however, some shocking supporters. "We are pleased to see an emerging international consensus," Nick Clegg, Meta's vice president of global affairs, told Reuters. "Facebook has long called for reform of the global tax rules, and we recognize this could mean paying more tax, and in different places." "Amazon supports the OECD Inclusive Framework's progress towards a consensus-based solution for international tax harmonization, and we look forward to their continued technical work," said the tech giant, in a public statement. Now to find out if Congress is more stubborn than Mark Zuckerberg. ***** A message from our sponsor. How Much Would $10 Of $AMZN In 2002 Be Worth Today?
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