Tech Giants Appease Global Minimum Tax Concerns as Trump Scraps Directive
On Inauguration Day, President Trump issued an executive order suspending the implementation of the global minimum tax agreement, a potential relief for tech industry behemoths.
Global Minimum Tax Deal
The 2021 agreement sought to address concerns over corporate tax avoidance:
* Pillar One: Multinationals pay taxes in countries where customers reside, even without a physical presence.
* Pillar Two: Sets a global minimum corporate tax rate of 15% for multinationals with revenue exceeding €750 million. Countries adopting Pillar Two can impose additional taxes on companies headquartered in jurisdictions with tax rates below 15%.
US Tax Credits and Undertax Rule
The US research and development tax credit reduces effective tax rates, potentially bringing them below the 15% minimum. This would subject companies to the undertaxed profits rule (UTPR), exposing them to additional taxation in countries where they operate.
Trump's Executive Order
Trump's order prevents the US from implementing Pillar Two, effectively neutralizing the UTPR. This move benefits tech giants like Meta, Alphabet, and Amazon, which utilize the R&D tax credit.
Biden Administration's Stance
While the Biden administration supports the global minimum tax, it has not pursued legislation. Former Treasury Secretary Janet Yellen had also negotiated an exemption for R&D tax credits.
Analysis
Trump's order may have been unnecessary as US companies already had safeguards in place to avoid UTPR penalties. However, it serves as a reminder of the US's commitment to its own interests.