The Big Story: G7 tax deal reached, but faces uncertainty in U.S. Congress.
This week, the finance leaders of the G7 countries came to an agreement on a global minimum corporate tax rate of at least 15 percent, which could hinge on the withdrawal of unilateral digital services taxes that disproportionately impact U.S. tech firms. The deal, which comes after years of negotiations in an effort to revamp international taxation, represents a first step in redrafting the rules in how multinational corporations are taxed.
Under the deal, which creates a global tax rate of at least 15 percent, corporations would face taxation based on where they do business in addition to existing taxes based on where they're headquartered. A second pillar of the agreement would apply to large multinational corporations that generate profit margins of at least 10 percent. Those corporations “would be required to pay taxes on 20 percent of profits they earn above the 10 percent threshold in the countries where they generated the revenue.” This provision is poised to affect some of the U.S.’ largest tech companies.
The success of the agreement may hinge, however, over the future of unilateral digital services taxes (DSTs), which are being pursued by dozens of countries, including those within the G7, and largely target U.S. companies. While many countries have indicated their intent to withdraw their DSTs if the Organization for Economic Co-operation and Development (OECD) reaches a long-sought consensus deal, it is unclear whether the measures will actually be withdrawn, particularly as economies struggle to recover from the COVID-19 pandemic and countries pursue and implement digital services taxes. These taxes, which largely discriminate against American companies and could result in passed-down costs for startups, will undermine the OECD process and complicate the path forward for the G7 deal.
The G7 deal will likely face additional hurdles as the OECD continues its negotiations, including from other nations with corporate tax rates lower than the proposed new minimum. The tax framework also faces an uphill battle in the U.S., where Senate republicans have already criticized the agreement, accusing the Biden administration of harming the country’s competitiveness and ability to set tax rates.
Policy Roundup:
U.S. Innovation and Competition Act passes Senate, faces uncertain future in House. This week, the U.S. Innovation and Competition Act passed the Senate in a bipartisan vote. The sweeping legislation, which includes the Endless Frontier Act, provides critical funding for the semiconductor industry, technology hubs, and the National Science Foundation, in order to boost U.S. competitiveness. The package now heads to the House, where its prospects are uncertain, as lawmakers in the lower chamber have their own legislation addressing competitiveness with China.
Colorado passes privacy bill. Colorado is set to become the third state in the nation with a comprehensive consumer privacy law after the state’s legislature passed its bill this week, sending it on to Governor Jared Polis’s desk. The law—which will go into effect in 2023 if signed—will, among other things, allow Internet users to opt-out of data collection and require companies to provide information about how they collect, store, and use consumer data.
Democrats ready bills intended to target big tech. According to reports this week, House Democrats are set to introduce five bills that would dramatically alter the landscape of the technology sector. One of the bills would largely prohibit tech industry leaders from conducting mergers and acquisitions. As we explained in a report earlier this year, acquisitions are a critical part of the startup ecosystem, and have a strong, positive relationship to investment in startups. As Engine has previously warned, policymakers must consider the consequences of these proposals for the startups and entrepreneurs.
Multi-stakeholder letter opposes changing patent eligibility law. Engine joined the American Civil Liberties Union and a broad coalition in a letter to the Biden administration this week opposing changes to what is and is not eligible for patent protection. The law currently bars patents on abstract ideas or laws of nature—which means no one should be able to claim exclusive patent rights to, e.g., email filtering, analyzing patient data, or human genes. As the letter explains, this area of the law has developed over 150 years and promotes innovation and competition by ensuring fundamental building blocks of technology are not monopolized.
New York Senate passes sweeping antitrust overhaul. In a party-line vote Monday, the New York State Senate passed a radical reform of the state’s antitrust law, which, among other things, would allow private citizens to sue on antitrust grounds. While the bill’s proponents say it will rein in ‘big tech,’ critics warn the bill's broad definitions will draw in small businesses, worsen the state’s business environment, and harm startups and innovation.
Startup Roundup:
#StartupsEverywhere: New York City, New York. Dr. Leonardo Bonanni—Founder and CEO of Sourcemap—was conducting product research at MIT when he came across the challenges companies were facing in developing a concrete understanding of their entire supply chain. This led him to develop Sourcemap—a platform that enables companies to network with their suppliers and understand vulnerabilities. We sat down with Bonanni to discuss how Sourcemap works, the impact of COVID-19 on their business and supply chains, and how the government can better partner with startups that are innovating supply chain technologies.
