Experts are concerned that President Joe Biden’s new global minimum tax rate of 15 percent on large multinational business will harm the small businesses that support them.
Treasury Secretary Janet Yellen confirmed on Saturday that leaders of the world’s 20 biggest economies (G-20) have endorsed the “historic agreement” on new international tax rules, including a global minimum corporate tax rate of 15 percent.
The new rule would also make it harder for multinational corporations, including tech giants like Google, Amazon, and Facebook, to avoid taxation by establishing offices in low-tax jurisdictions.
It is estimated it will generate around $150 billion in additional global tax revenues annually, while stabilizing the international tax system and increasing tax certainty for taxpayers and tax administrations, according to the Organization for Economic Cooperation and Development (OECD).
The new global minimum tax rate has been championed by Biden, who hailed it as a “game changer” while Treasury Secretary Janet Yellen told CNBC that what it will “provide is a level playing field globally where companies and countries can compete, on the basis of their innovative ideas, fundamentals, the quality of workforce, and their business environments.”
“Countries around the globe have decided that to finance the public infrastructure investments that they need to invest in their people, and not to have all of the burden of raising taxes fall on workers … this is a way to make sure that all countries in a fair way can collect more,” Yellen said.
Biden has also proposed a separate 15 percent tax rate that would apply to roughly 200 U.S. corporations making more than $1 billion in profits annually called the “Corporate Profits Minimum Tax.”
Combined, both tax rates could leave America’s largest businesses paying more than 30 percent in new taxes.
The Business Roundtable, which represents some of the largest companies in the United States, said the two tax proposals impose $800 billion in tax increases on businesses and would “aggravate the serious competitive disadvantage faced by U.S. companies relative to their foreign competitors.”
But experts fear the new 15 percent global minimum tax could inadvertently harm small businesses in the United States that support multinational corporations, leaving them exposed and making it more difficult for those business to enter into foreign markets due to the higher cost of conducting business abroad.
Small businesses that rely on multinational corporations will likely find themselves bearing the tax burden too, while those that rely on multinational companies for supplies could see costs increased further amid an ongoing supply chain crisis and skyrocketing prices.
“If you are a large company headquartered in the U.S., you are likely not doing everything by yourself. You are relying on small businesses to supply parts to support your overall operations,” Daniel Bunn, vice president of global projects at the Tax Foundation, an independent tax policy nonprofit, told The Washington Times. “It’s those small businesses that are most exposed when a large multinational sees a significant tax hike.”
“If you are a successful multinational company, you have the resources to navigate these rules, but it’s an extra layer of compliance to bury small business,” Bunn continued. “It turns smaller companies into acquisition targets rather than true competitors.”
The minimum tax could cost the U.S. 500,000 to 1 million jobs and decrease investment by $20 billion, The Washington Times reported, citing an August report by Ernst & Young, a multinational professional services network with headquarters in London.
“This is going to have a real impact,” Rep. Kevin Brady of Texas, the ranking Republican on the House Ways and Means Committee, told the outlet. “At the end of the day, our foreign competitors are going to insist on a big bite of America’s tax revenues. None of this makes any economic sense for America, certainly not for our ability to compete and win anywhere in the world, including here at home.”
The Epoch Times has contacted the Treasury Department for comment.
President Joe Biden, who traveled to Rome for the G-20 summit, wrote on Twitter that leaders “made clear their support for a strong global minimum tax,” calling it “more than just a tax deal—it’s diplomacy reshaping our global economy and delivering for our people.”
The minimum tax rate will apply to corporations with revenue exceeding 750 million euros (roughly $870 million) in sales globally.
Governments could still set their own local corporate tax rate but if companies pay lower rates in a particular country, their home governments could “top up” their taxes to the 15 percent minimum, eliminating the advantage of shifting profits, Reuters reported.