A new global tax agreement could create clarity and consistency around digital taxes around the world, including those that could have increased costs for startups.
Last week, 136 countries agreed to a groundbreaking deal that prevents new digital services taxes and allows governments to tax companies based on where their products and services are consumed — a major shift from what is ordinarily taxation based on physical presence. This framework would set a global corporate minimum tax rate of 15 percent on overseas profits for multinational companies exceeding 750 million euros in global sales. The deal, which is supported by the Organisation for Economic Co-operation and Development and the G20, is a priority for the Biden Administration and lessens concerns that an OECD deal would only target large, American tech firms.
While the deal represents a landmark step in addressing global corporate taxation for the 21st century, the framework faces an uphill battle as countries, including the U.S., must pass domestic legislation allowing for its implementation. The treaty, which would require agreement from two-thirds of the U.S. Senate, will face pushback in Congress, as it permits foreign governments to levy taxes on U.S. companies. Treasury Secretary Janet Yellen has expressed a desire for expedited consideration of the deal, but there is still some hesitancy in Congress. Ranking tax leaders in Congress, Rep. Kevin Brady (R-Texas) and Sen. Mike Crapo (R-Idaho) expressed disappointment with the administration’s support of the plan, arguing that the deal allows other countries to “delay implementation and secure side agreements and carve-outs to protect their own companies.”
The terms of the deal prevent “newly enacted digital services taxes or other relevant similar measures…on any company from 8th October 2021” through 2023, or the implementation of the framework. But guidance is unclear regarding the DSTs that are currently in place. And concerns remain about DSTs yet to be passed that could have implementation dates past the moratorium. Engine has in the past argued that digital services taxes, pursued by dozens of countries across the globe, are unfair and that they largely target U.S. technology firms. If enacted, they would place the burden of costs on the very users and startups who rely on these services to grow their businesses. The removal of these taxes and prevention of their future implementation would represent a step in the right direction in eliminating possible barriers to startup growth.
