Corporate Taxes Poised to Rise After 136-Country Deal

 
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Nearly 140 countries agreed Friday to the most sweeping overhaul of global tax rules in a century, a move that aims to curtail tax avoidance by multinational corporations and raise additional tax revenue of as much as $150 billion annually.

But the accord, which is a decade in the making, now must be implemented by the signatories, a path that is likely to be far from smooth, including in a closely divided U.S. Congress.

The reform sets out a global minimum corporate tax of 15%, targeted at preventing companies from exploiting low-tax jurisdictions.

Treasury Secretary Janet Yellen said the floor set by the global minimum tax was a victory for the U.S. and its ability to raise money from companies. She urged Congress to move swiftly to enact the international tax proposals it has been debating, which would help pay for extending the expanded child tax credit and climate-change initiatives, among other policies.

“International tax policy making is a complex issue, but the arcane language of today’s agreement belies how simple and sweeping the stakes are: when this deal is enacted, Americans will find the global economy a much easier place to land a job, earn a living, or scale a business,” Ms. Yellen said.

The agreement among 136 countries also seeks to address the challenges posed by companies, particularly technology giants, that register the intellectual property that drives their profits anywhere in the world. As a result, many of those countries established operations in low-tax countries such as Ireland to reduce their tax bills.

The final deal gained the backing of Ireland, Estonia and Hungary, three members of the European Union that withheld their support for a preliminary agreement in July. But Nigeria, Kenya, Sri Lanka and Pakistan continued to reject the deal.

The new agreement, if implemented, would divide existing tax revenues in a way that favors countries where customers are based. The biggest countries, as well as the low-tax jurisdictions, must implement the agreement in order for it to meaningfully reduce tax avoidance.

Overall, the OECD estimates the new rules could give governments around the world additional revenue of $150 billion annually.

The final deal is expected to receive the backing of leaders from the Group of 20 leading economies when they meet in Rome at the end of this month. Thereafter, the signatories will have to change their national laws and amend international treaties to put the overhaul into practice.

The signatories set 2023 as a target for implementation, which tax experts said was an ambitious goal. And while the agreement would likely survive the failure of a small economy to pass new laws, it would be greatly weakened if a large economy—such as the U.S.—were to fail.

“We are all relying on all the bigger countries being able to move at roughly the same pace together,” said Irish Finance Minister Paschal Donohoe. “Were any big economy not to find itself in a position to implement the agreement,  that would matter for the other countries. But that might not become apparent for a while.”

 

Congress’ work on the deal will be divided into two phases. The first, this year, will be to change the minimum tax on U.S. companies’ foreign income that the U.S. approved in 2017. To comply with the agreement, Democrats intend to raise the rate—the House plan calls for 16.6%—and implement it on a country-by-country basis. Democrats can advance this on their own and they are trying to do so as part of President Biden’s broader policy agenda.

The second phase will be trickier, and the timing is less certain. That is where the U.S. would have to agree to the international deal changing the rules for where income is taxed. Many analysts say that would require a treaty, which would need a two-thirds vote in the Senate and thus some support from Republicans. Ms. Yellen has been more circumspect about the schedule and procedural details of the second phase.

Friction between European countries and the U.S. over the taxation of U.S. tech giants has threatened to trigger a trade war.

In long-running talks about new international tax rules, European officials have argued U.S. tech giants should pay more tax in Europe, and they fought for a system that would reallocate taxing rights on some digital products from countries where the product is produced to where it is consumed.

The U.S., however, resisted. A number of European governments introduced their own taxes on digital services. The U.S. then threatened to respond with new tariffs on imports from Europe.

The compromise was to reallocate taxing rights on all big companies that are above a certain profit threshold.

Under the agreement reached Friday, governments pledged not to introduce any new levies and said they would ultimately withdraw any that are in place. But the timetable for doing that has yet to be settled through bilateral discussions between the U.S. and those countries that have introduced the new levies.

Even though they will likely have to pay more tax after the overhaul, technology companies have long backed efforts to secure an international agreement, which they see as a way to avoid a chaotic network of national levies that threatened to tax the same profit multiple times.

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The Organization for Economic Cooperation and Development, which has been guiding the tax talks, estimates that some $125 billion in existing tax revenues would be divided among countries in a new way.

Those new rules would be applied to companies with global turnover of €20 billion (about $23 billion) or more, and with a profit margin of 10% or more. That group is likely to include around 100 companies. Governments have agreed to reallocate the taxing rights to a quarter of the profits of each of those companies above 10%.

The agreement announced Friday specifies that its revenue and profitability thresholds for reallocating taxing rights could also apply to a part of a larger company if that segment is reported in its financial accounts. Such a provision would apply to Amazon.com Inc.’s cloud division, Amazon Web Services, even though Amazon as a whole isn’t profitable enough to qualify because of its low-margin e-commerce business.

The other part of the agreement sets a minimum tax rate of 15% on the profits made by large companies. Smaller companies, with revenues of less than $750 million, are exempted because they don’t typically have international operations and can’t therefore take advantage of the loopholes that big multinational companies have benefited from.

Low-tax countries such as Ireland will see an overall decline in revenues. Developing countries are least happy with the final deal, having pushed for both a higher minimum tax rate and the reallocation of a greater share of the profits of the largest companies.

 
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Google Hit With $593 Million Fine In France For Failing To Ink Deal With News Publishers

FRANCE-ECONOMY-TECHNOLOGY-VIVATECH

Google was hit with a $593 million (€500 Million) fine by antitrust regulators in France on Monday after the company failed to offer a fair deal to local publishers for hosting their news content on its platform, adding to the list of several large fines the U.S. tech giant has copped in Europe in the past few years.

The ruling comes after Google failed to comply with an April 2020 decision by the French regulators to negotiate a deal “in good faith” with publishers to carry snippets of their content on its Google News platform. As part of the ruling, the French Competition Authority has ordered Google to come up with an remuneration offer for its use of the news snippets within two months.

If the tech giant fails to meet the deadline, it will face penalty payments of up to $1 million (€900,000) per day of delay. In a statement shared with Forbes, Google said it was “very disappointed” with the ruling and it believes it had “acted in good faith throughout the entire process.” The company added that it is about to reach a global licensing agreement with the French news agency, Agence France-Presse (AFP), but did not provide a timeline.

Google will be able to appeal Tuesday’s fine, but it is unclear if it will choose to do so.

Crucial Quote

“The sanction of 500 million euros takes into account the exceptional seriousness of the breaches observed and how Google’s behavior has led to further delay of the proper application of the law…which aimed to better take into account the value of content from publishers and news agencies included on the platforms,” Isabelle de Silva, president of the French Competition Authority said in an official statement.

Surprising Fact

Tuesday’s fine is the second-biggest antitrust penalty a single company has faced in France. Last year, the competition regulator hit Apple with a $1.2 billion fine after the company was found to have signed anti-competitive agreements with two distributors over the sale of non-iPhone products such as Apple Mac computers. Apple has appealed the ruling.

Key Background

Publishers in Europe have clashed with Google multiple times in the past year, accusing the tech giant of luring away billions of euros in advertising money from the publishers while leveraging their content. Particularly contentious has been the company’s Google News platform which hosts snippets of news stories from publishers without paying them. On the flipside, publishers are unable to yank their content from Google’s platform as they rely on it heavily to drive traffic to their sites.

Earlier this year, Google managed to reach a $76 million deal to pay a group of 121 French Newspapers. But the AFP and other French publishers who were not part of the deal expressed anger and slammed Google for being opaque. De Silva has dismissed that deal and criticized Google for limiting the scope of the negotiations, excluding agency content like photos, and offering to pay the same amount for news content that it does for dictionary listings or weather information.

Further Reading

Google Fined $593 Million By French Antitrust Agency (Bloomberg)

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I am a Breaking News Reporter at Forbes, with a focus on covering important tech policy and business news. Graduated from Columbia University with an MA in Business and Economics Journalism in 2019. Worked as a journalist in New Delhi, India from 2014 to 2018. Have a news tip? DMs are open on Twitter @SiladityaRay or drop me an email at siladitya@protonmail.com.

Source: Google Hit With $593 Million Fine In France For Failing To Ink Deal With News Publishers

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Critics:

Google said it was very disappointed with the decision but would comply. “Our objective remains the same: we want to turn the page with a definitive agreement. We will take the French Competition Authority’s feedback into consideration and adapt our offers,” the U.S. tech giant said.

A Google spokesperson added: “We have acted in good faith throughout the entire process. The fine ignores our efforts to reach an agreement, and the reality of how news works on our platforms.”

The framework agreement, which many other French media outlets criticized, was one of the highest-profile deals under Google’s “News Showcase” programme to provide compensation for news snippets used in search results, and the first of its kind in Europe.

Google agreed to pay $76 million over three years to a group of 121 French news publishers to end the copyright row, documents seen by Reuters showed. It followed months of bargaining between Google, French publishers and news agencies over how to apply the revamped EU copyright rules, which allow publishers to demand a fee from online platforms showing extracts of their news. read more

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Brent Oil Extends Gain as OPEC+ Talks End Without Supply Deal

Brent oil extended gains after OPEC+ ended days of talks without a deal to bring back more halted output next month, depriving the market of vital barrels as the global economic recovery gathers pace.

Futures in London traded above $77 a barrel after rising 1.3% on Monday. The failure to reach an agreement means current production limits will remain in place for August unless talks are revived. A disagreement over how to measure output cuts upended a tentative proposal to boost supply and devolved into a public spat between allies Saudi Arabia and the United Arab Emirates.

The situation is fluid and negotiations may be reactivated in time to add more output in August. However, the breakdown has damaged the group’s image as a responsible steward of the market and raised the specter of a repeat of last year’s destructive price war that sent oil crashing.

“In theory, if the group keeps output unchanged in August that should be bullish for the market,” said Warren Patterson, the head of commodities strategy at ING Group NV. “However, in reality, what is the likelihood that members actually keep output unchanged? I don’t think it’s very high.”

The global market has tightened significantly over the past few months amid a robust rebound in fuel demand in the U.S., China and parts of Europe, draining stockpiles built up during the pandemic. The International Energy Agency last month urged the OPEC+ alliance to keep markets balanced as worldwide demand accelerated toward pre-virus levels.

The market has moved further into a bullish structure after the breakdown of talks. The prompt timespread for Brent was 99 cents a barrel in backwardation — where near-dated contracts are more expensive than later-dated ones — compared with 87 cents on Friday.

OPEC+ had restored about 2 million barrels a day halted during the pandemic from May to July. The alliance was close to a deal to raise daily output by a further 400,000 barrels in each month from August through December, as well as extend the supply pact beyond April 2022. The UAE, however, said it would only accept the proposal if it was given better terms for calculating its quota.

The UAE said throughout that it would accept the output increase without the deal extension, but the Saudis argued that the two elements must go together.

Related news
Prices
  • Brent for September settlement rose 0.4% to $77.48 a barrel on the ICE Futures Europe exchange at 12:02 p.m. in Singapore.
  • West Texas Intermediate for August delivery gained 2% from Friday’s close to $76.69 on the New York Mercantile Exchange.
    • There was no settlement Monday due to a U.S. holiday.

With no imminent boost to OPEC+ supply, the market is likely to tighten further and could result in Brent climbing to $80 a barrel by September, according to UBS Group AG. It’s unclear if the no deal will translate into lower compliance rates next month, although the the release of Saudi Aramco’s official selling prices for August should provide more clarity, the bank said.

— With assistance by Keith Gosman

 

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