June 21, 2021

How Would A Global Minimum Tax Impact U.S-Based Companies?

As Connecting the Dots reported last week, finance ministers from G7 countries (Canada, France, Germany, the United States, Italy, Japan, and the United Kingdom) announced a deal that, if enacted, would impose a global minimum tax of at least 15 percent and create a new taxing right that would reallocate a portion of the profits of the “largest and most profitable” companies to their market jurisdictions. The 15 minimum tax would be paid in the country where a company is headquartered.

Last week, the nonpartisan, nonprofit Tax Foundation released a report that explored how this proposal could impact U.S. businesses operating around the world. According to the Foundation, the U.S. companies targeted by a global minimum tax have a significant economic footprint across the world, employing approximately 28.6 million workers in the United States and 14.4 million in the rest of the world.

If a global minimum tax is implemented, the Foundation said it could:

  • Increase the tax burden on business investment across the world;
  • Have negative blowback effects on domestic markets; and
  • Directly (and negatively) impact multinational companies’ investment decisions.

The Foundation concluded, “A harmful global minimum tax could therefore threaten jobs and investment both abroad and at home.” It recommended that, in order to “mitigate the negative economic effects of a global minimum tax, policymakers should ensure that both the minimum rate and the tax base to which it applies are designed in a way that does not distort investment decisions but still acts as a backstop to current corporate tax rules.”

Read the full report here.