Big tech companies said Thursday’s breakthrough in negotiations over a global tax overhaul was a step toward avoiding a patchwork of overlapping national taxes, but executives and trade bodies said they still need to see those tax regimes disappear before calling the deal a win.
The U.S. secured international backing for a global minimum rate of tax as part of a wider overhaul of the rules for taxing international companies. Officials from 130 countries that met virtually agreed Thursday to the broad outlines of the overhaul. It would be the most sweeping change in international taxation in a century.
Those governments now will seek to hammer out the details and then pass local laws to make the deal a reality, according to Thursday’s agreement.
One set of rules generally agreed to on Thursday would ensure that all companies based in signatories’ countries pay a minimum tax rate of at least 15% in each of the nations in which they operate, reducing opportunities for tax avoidance. Another set of changes would shift where some of the world’s biggest and most profitable companies pay some of their income taxes, though some industries would be exempted. Most big mining and oil-and-gas companies, for instance, already pay higher tax rates in the places they operate. The deal in its current form doesn’t include financial services.
A minimum tax, if adopted widely, would reduce the incentive for big companies to set up subsidiaries in tax havens. In each of the past five calendar years, between two dozen and three dozen of the 100 biggest companies by market capitalization reported effective tax rates of less than 15% , according to data from S&P Global Market Intelligence.
It is unclear whether some of the most important signatories—including the U.S.—can deliver on the deal. Such an overhaul would require Congressional support, which is far from certain.
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Silicon Valley, an industry facing among the biggest changes related to the tax deal, has generally supported an overhaul, even if it might mean paying more tax—and it isn’t yet clear how many, if any, would have to do that. Tech giants have embraced the overhaul because they say it would eliminate a growing array of separate tax regimes in place or threatened in a host of countries, including the U.K. and France.
“It’s now widely recognized that the tax rules that were built for a brick-and-mortar world just don’t really fit for an increasingly online world,” said Nick Clegg, vice president of global affairs at Facebook Inc., in a press conference last month.
Mr. Clegg said Facebook welcomes momentum toward new rules “to reflect the online economy more fully in governments’ tax revenues and coffers, and we expect as Facebook that will mean we will pay most likely more tax and certainly tax in different countries.”
After the announcement Thursday, a Facebook spokesman added that the company was “pleased to see momentum behind the issue” and “we want the OECD talks to succeed.”
Tech lobbyists remain adamant, however, that a global tax deal must include the withdrawal of digital-services taxes, like those implemented in several European countries. Those taxes have sparked threats of retaliatory tariffs on European goods from the U.S., raising the specter of a trade war if no deal were reached.
“Industry looks forward to engaging on the details of the implementation plan, and urges countries to remove digital-services taxes and forgo plans to adopt similarly discriminatory national measures,” said Matt Schruers, president of the of the Computer & Communications Industry Association, which represents companies including Alphabet Inc.’s Google and Facebook.
Final negotiations to iron out the details of new tax rules are expected to stretch until the fall. Companies say they plan to pay close attention to those talks, which could affect how the rules are implemented and which companies might have to pay more in taxes.
“We recognize that many outstanding decisions remain. We plan to engage with participating governments ahead of the October meetings to ensure a functioning and dependable global tax system that promotes investment and innovation and provides certainty and predictability for businesses,” said Jason Oxman, president and chief executive of ITI, a tech-industry trade group that includes Apple Inc., Amazon.com Inc., Facebook and Google.
Write to Sam Schechner at [email protected]
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