Global Tax Overhaul Encounters Headwinds

Ambitious international tax initiatives aimed at billionaires and multinational corporations face significant obstacles, particularly due to resistance from the United States under the leadership of former President Donald Trump.

The real estate magnate previously withdrew the U.S. from a multinational taxation agreement and threatened levies on nations targeting American tech companies.

Current Status of Key Tax Initiatives:
Digital Services Taxes

Numerous countries have criticized major tech firms like Amazon, Microsoft, Alphabet (Google), and Meta (Facebook) for allegedly avoiding local taxes.

On February 21, Trump cautioned countries against imposing what he termed “discriminatory, disproportionate” taxes or fines on U.S. tech firms, warning of retaliatory measures.

“My administration will act, by imposing tariffs and taking other necessary responsive actions to mitigate the harm to the United States,” he stated.

This stance has reignited tensions between the U.S. and its allies regarding the taxation of digital services.

During his tenure, Trump threatened tariffs on French champagne and cheese in response to France’s 2019 digital services tax. Since then, seven other nations have followed suit.

France’s digital tax generated 780 million euros ($887 million) in revenue last year. The European Union now threatens to impose its own digital services tax if negotiations fail regarding Trump’s proposed 20 percent tariffs on EU goods.

The UK, seeking a trade agreement with the U.S., may reconsider its digital levy, which currently generates £800 million annually. British Trade Secretary Jonathan Reynolds indicated that the digital tax is subject to change and open for discussion.

Global Corporate Tax

In 2021, nearly 140 countries reached a consensus on taxing multinational corporations, an agreement facilitated by the Organisation for Economic Co-operation and Development (OECD).

The OECD agreement comprises two main components.

  • The first pillar focuses on taxing companies in the countries where they generate profits, aiming to curb tax evasion, primarily targeting tech giants.
  • The second pillar establishes a minimum global corporate tax rate of 15 percent, adopted by approximately 60 economies, including Brazil, the UK, Canada, the EU, Switzerland, and Japan.

Daniel Bunn, head of the Tax Foundation, suggests that negotiations regarding the first pillar’s implementation have stalled, even under the Biden administration.

Economist Gabriel Zucman emphasized the crucial role of the EU’s response, warning that the abandonment of the agreement by the EU and other nations, allowing American multinationals to exempt themselves, would jeopardize its effectiveness.

Taxing the Wealthy

Efforts to tax the world’s wealthiest individuals are also facing setbacks.

Brazil, during its G20 presidency, advocated for a two percent minimum tax on the net worth of individuals possessing over $1 billion in assets, estimated to generate $250 billion annually.

The Biden administration hesitated on the plan, and it is unlikely to gain traction with Trump, given his inclination towards tax cuts. According to Forbes, almost a third of the world’s billionaires reside in the United States, surpassing the combined number from China, India, and Germany.

Economist Thomas Piketty recently stated that individual countries should act promptly, rather than waiting for a unanimous G20 agreement, suggesting that historical precedents indicate that the adoption of reforms by influential nations often sets a new standard.