For the world’s largest companies, global tax policy is proving the adage that you should be careful what you wish for.
European countries have pushed for tax reform for years, and the Biden administration’s latest proposal seems to offer what they asked for. U.S. tech giants said they were willing to pay more if it meant predictable bills. Now those claims may finally be put to the test.
The White House’s $2.3 trillion investment plan relies on 15 years of higher tax revenues underpinned by global rule changes to ensure that firms aren’t handicapped or tempted to flee overseas. The proposal ticks two key reform boxes for Europe’s governments: a global minimum tax to level the playing field and a reallocation of taxation rights so that the biggest companies pay more in countries where they make more revenue, regardless of where their physical assets are.
After years of mostly talk but little action, a tax deal once again seems possible. The U.S. plan differs somewhat from the detailed blueprints put forward by the Organisation for Economic Cooperation and Development last year, but it simplifies the implementation and is likely close enough. The key differences are a higher minimum tax rate than previously discussed and an extension of which companies are covered by the new local taxation rights.
Global tax is a higher priority for President Biden than his predecessors, particularly as it is linked to his infrastructure plan. In the past, OECD digital tax reform progress stalled whenever U.S. engagement waned. Many countries may now compromise to expedite a deal, just in case American priorities change.
