In a major blow to a landmark tax deal negotiated by 140 countries over the course of a decade, a stalemate in Washington could potentially derail the agreement. The deal, known as the ”Pillar 1” reform, aims to close loopholes that allow large multinational companies to avoid paying up to $240 billion in taxes each year.
The Organisation for Economic Co-operation and Development (OECD) orchestrated the agreement, which all parties signed onto in 2021. The reform would require companies to pay taxes in the country where they generate revenue, regardless of where they are headquartered.
The issue at hand is that the US was supposed to ratify the reform by June 30, but that deadline has passed without any action. While the Biden administration supports the plan, Senate Republicans are against it, preventing the US from moving forward with the agreement as Senate approval is required for tax treaties.
In response to the US’s inaction, other countries are taking matters into their own hands. Canada has already implemented a local tax on large tech companies, while New Zealand plans to follow suit in 2025 with its own digital services tax. Negotiations are ongoing, with Manal Corwin, director of the OECD’s Centre for Tax Policy and Administration, expressing optimism that a final agreement can still be reached.
If a global agreement is not reached, there could be a potential “tax war” among nations seeking revenue from large multinational corporations. This could lead to inconsistent tax codes for tech giants like Google, Apple, Meta, and Amazon, impacting their ability to invest, grow, and create jobs.
In other news, the number of job openings unexpectedly increased in May, signaling resilience in the US labor market. The Federal Trade Commission has also taken a firm stance against a merger between mattress maker Tempur Sealy and Mattress Firm, citing concerns over competition and consumer prices.
