British Prime Minister Boris Johnson meets with Joe Biden, ahead of the G7 summit, in Cornwall, England, June 10, 2021. (Toby Melville/Reuters)
Welcome to the Capital Note, a newsletter about business, finance, and economics. On the menu today: the G-7’s agreement on digital taxes, May’s inflation numbers, the EU’s fine on Amazon, and Glenn Hubbard’s suggest for international tax authorities. To sign up for the Capital Note, follow this link.
Where does Google come from?
The big headline from this weekend’s meeting of G-7 financial ministers was an agreement to set a global minimum tax rate of 15 percent on corporations. But an equally consequential pillar of the deal pertains to the taxation of digital services.
Pillar 1, as negotiators call it, gives OECD member nations the right to tax the largest and most profitable businesses, regardless of these companies’ physical presences. If the deal goes through, multinational corporations will face a 20 percent tax on profits generated anywhere.
The digitization of the global economy has posed a conundrum for international tax authorities. Digital platforms generate revenue globally: Anyone, anywhere who uses Google search generates some amount of money for the company. While most tech firms are headquartered in the U.S., tax authorities abroad recently began laying claim to the revenues generated by these firms in their jurisdictions.
France led the way with its digital-services tax in 2019, levying a 3 percent tax on the gross revenues of digital businesses with more than $750 million in global sales. The previous administration’s U.S. Trade Representative argued that the tax unduly harmed U.S. businesses, because the large multinationals subject to the tax were virtually all American. OECD discussions on digital taxation began under the Trump administration but were paused by former Treasury secretary Steven Mnuchin during the COVID-19 pandemic.
The resolution reached by the G-7, to my mind, essentially codifies a slightly more reasonable version of the digital-services tax. Instead of taxing gross revenues, as France did, the G-7 deal will tax profits. However, it still applies only to the largest, most profitable businesses globally,
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