Why the Global Minimum Tax Deal Is a Win for Silicon Valley
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U.S. tech giants in Silicon Valley look headed for a tax win, as 130 countries signaled support for a global minimum tax rate that would result in the most significant international tax reform in a century. At least 90% of the world’s GDP is represented in this agreement, including all of the major G20 economies like Germany, France, China, India and Japan.
Notably, low-tax countries such as Ireland—which is a popular destination for many U.S. tech companies’ European headquarters including Alphabet ‘s Google (GOOGL), Microsoft (MSFT), Intel (INTC), Apple (AAPL), and Facebook (FB)—Estonia and Hungary, as well as Sri Lanka, Nigeria and Kenya, were absent from the agreement.
The governments of 130 countries on Thursday agreed to broad outlines for the plan, which would seek a minimum tax rate of at least 15% for companies operating within that country.
The new tax rate for corporations has several implications, such as working to fix the problem of tax avoidance that costs nations between $100 billion and $240 billion in tax revenue each year, according to the Organization for Economic Cooperation and Development (OECD).
A key tax avoidance tactic occurs when international companies shop around to headquarter their business in countries with the lowest tax rates, which U.S. Treasury Secretary Janet Yellen referred to as a “global race to the bottom.”
President Joe Biden, who has been pushing corporate tax raises, believes the agreement will help raise revenue for spending on infrastructure. “And it will allow us to devote the additional revenue we raise to making generational investments, which are necessary to keep America’s competitive edge razor sharp in today’s global economy,” he said.
Silicon Valley has long been embroiled in spats with the European Union over tax issues, as the bloc has sought to curb what they view as unfair advantages and overreach by U.S. tech giants as the global economy becomes increasingly digitized, according to Bloomberg.
This new tax agreement represents a major win for the tech industry because it circumvents the threat of country-by-country national taxes that would target American tech companies.
“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, VP of global affairs at Facebook, in a press conference last month, The Wall Street Journal reported.
On Friday, Microsoft was up 2.2%, Apple gained 2%, Facebook advanced 0.1%, and Intel was up 1.3%. The tech-heavy Nasdaq Composite was up 0.8%.