New analysis from TaxWatch reveals how the US Government is set to be the big winner from increases in taxes on big tech arising from the global tax negotiations currently underway under the auspices of the G20/OECD.
In our latest research, we have analysed the gains that the US Government can expect from imposing a global minimum tax of 21% on Facebook, Google, Apple, and Microsoft. This would result in an extra $5.4bn in taxes from just these four companies, whereas we estimate the total additional tax these companies would pay in all other countries under Pillar One would be $2.5bn under the terms of the G7 agreement set out earlier this year.
The figure of 21% is used because the stated intention of the US Government is to impose a global minimum of 21% on companies headquartered in the US, regardless of the minimum level set through the OECD led process.
Furthermore, we find that the US Government would also benefit from the removal of tax incentives on royalties received by US parents from overseas operating companies (the Foreign Derived Intangible Income incentive, or FDII).
The removal of the FDII incentive is facilitated by the increase in global minimum taxation and therefore should be seen as a benefit of it.
We estimate that just four tech companies will see taxes increase in the US by $3bn per year as a result of the removal of the FDII.
Taken together, this means that the package of reforms will mean a yearly increase in US Tax of $8.4bn from just four companies, as against a benefit of $2.5bn shared between all other countries.
What is significant is that both the global minimum tax and the FDII only impact profits that arise from revenues made overseas, in countries like the United Kingdom where sales are made. The analysis therefore demonstrates that the G7 / OECD deal resolves the question of who gets to tax the offshore billions of tech companies decidedly in favour of the United States, with relatively little being distributed to the countries where these companies operate. This was not necessarily the outcome expected from the OECD led BEPS process, which had a stated goal of making tech companies pay a fair share in the countries where they operate.
The full report, ‘A Fair Distribution’, is available as a web page here, and as a PDF here. This research was featured in The Guardian as an op-ed by our Executive Director George Turner, available here.