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130 Countries Agree to Biden's Global Minimum Tax Proposal, But It's All Hot Air

130 countries including the entire G20 agree to an outline regarding a global minimum tax. But what does it mean?
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Global Minimum Tax Allegedly Gathers Steam

The WSJ reports the US Wins International Backing for Global Minimum Tax.

Officials from 130 countries that met virtually agreed Thursday to the broad outlines of the overhaul, including all of the Group of 20 nations. It would be the most sweeping change in international taxation in a century. They include China and India, the large developing countries that had previously had reservations about the proposed overhaul. 

Those governments now will seek to pass laws ensuring that companies headquartered in their countries pay a minimum tax rate of at least 15% in each of the nations in which they operate, reducing opportunities for tax avoidance.

Race to the Bottom and Alleged Fair Share

The Organization for Economic Cooperation and Development, which guides the negotiations, estimates that governments lose revenues of between $100 billion and $240 billion to tax avoidance each year.

“After years of intense work and negotiations, this historic package will ensure that large multinational companies pay their fair share of tax everywhere,” said OECD Secretary-General Mathias Cormann.

U.S. Treasury Secretary Janet Yellen called it “a historic day for economic diplomacy.”

She added, “Today’s agreement by 130 countries representing more than 90% of global GDP is a clear sign: The race to the bottom is one step closer to coming to an end.

Sticking Point and Alleged Resolution

The toughest question in the tax talks has been the handling of the largely American cadre of tech giants. European countries wanted those companies to pay more taxes in countries where they do business. But the U.S. had rejected a deal that focused only on tech companies as both discriminatory and outdated given the increasingly digital nature of most sectors. 

The 130 governments have agreed to focus the new tax rules on any large, global businesses that have a profit margin of at least 10% on global turnover of at least 20 billion euros.

The resolution is to tax "Big Tech!" not "Big Tech". There is no difference in practice, but the precise wording is such that it only applies to the biggest of big US tech corporations including Google, Amazon, Microsoft, Intel, Facebook, and Apple.

US Hot Air Synopsis

For starters, this has to get through Congress and Republicans object. 

Biden wants to raise the U.S. corporate tax rate to 28% from 21%, and the minimum tax on U.S.-based companies’ foreign profits to 21% from 10.5%.

I rate those ideas as about a 5% chance but only in an unlikely Reconciliation play if Democrat Senators Joe Manchin of West Virginia and Krysten Sinema of Arizona get on board. 

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Finally, will Republicans get on board with the idea to tax "Big Tech!" not "Big Tech" with wording that primarily applies to US corporations? 

International Hot Air Synopsis

So far, all we have is an "outline". Details are lacking.

These negotiations started in 2013. It took 8 years to agree to an outline that started with Obama!

It does not matter how many countries sign up for an "outline" how many will actually pass the final version, any version?

When?

More importantly, how many countries won't get on board?

That is the key question. Two of the biggest tax have regions are the Bahamas and Ireland.

The corporate tax rate in Ireland is 12.50% and it's 0.00% in the Bahamas. 

Ireland is the European headquarters for most US big tech companies. And guess who isn't on board with this scheme. 

Ireland will be reluctant to go along, but even if it does, the average corporate tax rate in the EU is 20%.  The rest of the EU would still be upset with Ireland.

Hot Air Conclusion

Yellen is wrong when she says "The race to the bottom is one step closer to coming to an end."

Corporations don't really pay taxes. Consumers do, through higher prices, fewer jobs, less business expansion, etc.

Mish

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