G7-15% Global Minimum Tax Floor Reform for Digital Multinational Firms (D-MNC)

G-7 Has reached an international tax deal of a 15% floor for all participating nations. While this still must be sold to the 135 nations in the G-20 its a good start in creating an agreed upon international minimum tax rate. It is unlikely Big Tech will welcome the news but it should have been expected. When new technology disrupts old systems it takes time for government to update its thinking to meet those changes. A high global connected society will best be suited by a calibrated tax system and having a rock bottom minimum limit to equalize playing field.

Companies have sort of circumvented the hodge podge international tax system to their advantage (I'm not making moral judgements here because its a dollar and cents decision). The problem we face is that MNCs offer products and other services within countries they don't much tax. That became a problem as international shipping spread out supply lines and even more of a problem when there are little proximity advantages for digital products (unless you build a cluster and a network).

More Consideration Beyond Tax Rate Alone:  

Let us say that you utilized the infrastructure of the U.S. to build yourself an awesome global tech firm. You are making money off of your big tech idea and then a smart accountant comes and says, "Hey, move it over to this tax haven country and you play 1/4 the rate of the U.S.". With sparkling eyes many will pack up their bags and set up a remote shop halfway across the globe (European countries experience that as well.) The American people loose out on that tax revenue but the owners and shareholders would reap the benefit (while of course living in advanced countries where it is safe, infrastructure is strong, etc... We might also consider why the rich and poor are highly divided if employment opportunities dry up but international tech stocks rise).

Big technology isn't going away and its likely to keep growing as we enter the Digital Era./Information Age. That leads to a problem of catching up to products and services transferred around the globe but the taxation system unable to handle this level of complexity. Helping companies understand value parity in European and American countries infrastructure and lifestyle also helps these companies ponder the other disadvantages putting too much emphasis on the low tax rate itself. 

In other words, executives will have to conduct an environmental scan of all the positives and negatives of a country/local before making an HQ move.  That may also lead to less volatility if there is a "hometown" and international tax rate (volatility and long-term lowering of competitiveness). Moving around in tax dodging only goes so far and doesn't truly allow a company to build capacities and competencies in its HQ market.

From my understanding, the new system is a level of agreement beyond the floor tax rate of 15% and taxation of products/services within the country they are sold. This will create a fairer system but it will also likely create some ripple effects globally as companies reassess their global strategies (It may also impact American bleeding of companies). Any change in policy will impact how companies adjust to those policies.

You can read a little more about the background of the problem in the Journal of International Law The Transformation of International Tax , there is an, "....effort transformed international tax—changing its participants, agenda, institutions, norms, and even its legal forms. Perhaps most important, efforts to close corporate tax loopholes widened a rift over revenues that threatens a hundred-year-old tax treaty framework." (Mason, 2020, para 1).

Government administrators and finance gurus have been thinking about these things for a long time. This is one of the first times in modern history they were successful able to come to an agreement on a more comprehensive system based in digitization and globalization. That will inevitably have advantages for Europe and the U.S. Janet J. Yellen, the Secretary of Treasury, made the following announcement on the U.S. Department of Treasury page:

"The G7 Finance Ministers have made a significant, unprecedented commitment today that provides tremendous momentum towards achieving a robust global minimum tax at a rate of at least 15%. That global minimum tax would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world. The global minimum tax would also help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our work forces and investing in research and development and infrastructure. (Yellen, 2021, para 1)"

"Hometown" Digital Tax Man Plan: 

I'm also working on a calibrated tax system for the U.S. in a way that might lead to attracting home based firms and help pay for long-term infrastructure that keeps the U.S. competitive. It should be noted that under this hypothetical system HQ and companies that invest in the U.S. get a "hometown" rate while international companies that utilize the U.S. infrastructure (and other advantages) but are foreign/international may have an "international" rate. 

There will be some trade off in environment and infrastructure with the tax rate. Sure, a country could put the rate at 15% MNC tax rate floor but if they don't have the available bandwidth, corrupt officials, poor education, etc... then it wouldn't necessarily be better than a country with 27% rate if the but has the right environment. 

 Now, offering a 21% "home town" rate might lead to some of those companies making the decision to invest more in operations and move their HQ back to the U.S. (This leads to more advantages for other companies. The cluster system I'm working on maximizes those environmental benefits making the rate not the essential/only issue for corporate boards to consider.) 

Its not really finished yet nor has it been compared with general international principles to see if it would really work. However, its just an idea but it still seems like it might have some merit with the new international tax system being outlined by the G-7 (I'm not saying or giving a full opinion yet but just sort of exploring the option.). You can read a little about it below: 

You can take a look at what I'm doing.....

1.)See Lower HQ Tax and Supplier Infrastructure

2.)See Attracting MNC to US.

 
Yellent, J. (June 5th, 2021). Statement from Secretary of the Treasury Janet L. Yellen On G7 Finance Ministers’ Commitment to Global Minimum Tax. US Department of Treasury. https://home.treasury.gov/news/press-releases/jy0214

Mason, R. (2020). The Transformation of International Tax. American Journal of International Law, 114(3), 353-402. https://www.cambridge.org/core/journals/american-journal-of-international-law/article/transformation-of-international-tax/A335E9177D1C7A692362066205689D1B