GLOBAL MINIMUM TAX
The Global Minimum Tax is a set minimum tax rate that will be applied to all multinational corporations who participate in business across the globe. It is intended to increase the cooperate tax burden on business investments worldwide, therefore increasing global tax revenue.
As companies grow internationally due to increasing globalization, the question of how to tax these firms in different countries across the world does as well. There is no current all encompassing system for taxing companies doing business globally, resulting in an imbalanced digital tax system decided by foreign governments on American technology companies to be used as a foreign revenue stream. The Paris-based Organization for Economic Cooperation and Development (OECD) drafted an agreement initially with the economic global Group of 7 (G7), detailing a two-pillar tax plan to solve the imbalanced implantation of taxation. The first pillar included a reallocation of the tax realm, and the second pillar was the global minimum tax.
The global minimum corporate tax rate was agreed upon by the original G7 in June to be at least 15% on multinational corporations doing business across the globe.
PUERTO RICO AS A PROTOTYPE
In 1996, the U.S government begun the process of removing tax benefits for U.S companies operating in Puerto Rico. As a result, companies affected by this policy change experienced a 4.65-6 percentage point increase in taxes
Global investment is also estimated to have been reduced by 10%.
ISSUES WITH THE GLOBAL MINIMUM TAX
By setting a global minimum tax rate, world governments will impose on American corporations a significantly increased share of the global tax burden, and the current Administration will cede American tax jurisdiction to foreign countries. Not only would the global minimum tax make American firms less competitive in the world economy, but would also weaken the U.S. economy, inevitably harming American businesses, jobs, and workers at a critical time in the process of economic recovery following the pandemic. An increase in taxes on American companies will be paid for by American consumers, and the tax revenue will not be returning to the U.S Treasury, but instead foreign countries. This lack of tax revenue leads to a decrease in American shareholder wealth, those who are taking risks in the development of the multinational companies, which could lead to less investment in American companies, and thus the American economy.