A global tax deal is inching toward implementation after negotiators presented a legal text that sets out who can levy the profits of the world’s biggest corporations in order to prevent a resurgence of trade tensions.
The multilateral convention, or MLC, is designed to update myriad bilateral treaties to reflect a world economy in which large tech companies currently pay little tax to governments in countries where they have a significant market presence.
If implemented, around $200 billion of profits would be re-allocated for tax purposes, boosting global revenue for governments by $17 billion to $32 billion a year, according to the Organization for Economic Cooperation and Development.
It would also put an end to taxes that some governments slapped on the revenue of tech companies including Alphabet Inc.’s Google and Meta Platforms Inc.’s Facebook despite U.S. protests.
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The global deal is key to avoiding a sudden return to the trade tensions that plagued transatlantic relations during the Trump administration. The spat began after European countries lost patience with the OECD negotiations and introduced the revenue levies — known as digital services taxes, or DST — directly on the revenue of tech firms. The U.S. threatened to retaliate with tariffs.
To come into force, 30 jurisdictions representing 60% of around 100 affected companies must ratify the MLC.
“The release of this text represents another significant step toward the practical implementation of the October 2021 agreement,” said Manal Corwin, director of the OECD Center on Tax Policy and Administration.
Still, the presentation of the MLC is no guarantee that tensions won’t resurface. While the U.S. won an agreement to extend a worldwide freeze on digital taxes in July, the truce is contingent on a critical mass of countries signing the MLC — a first step before ratification — by the end of 2023.
Given the U.S. is home to a large share of the affected companies, its signature is crucial. While President Joe Biden’s administration has long supported the overall deal, it hasn’t committed to signing the MLC, and Congress has signaled almost no willingness to ratify the agreement.
A Treasury Department spokesperson declined to comment when asked for an update on the U.S. position.
Even if the signing doesn’t happen by the end of 2023, Corwin said that only affects the standstill agreement and that the deal could still theoretically advance to completion.
“It doesn’t ultimately mean that we don’t keep moving on finishing the tremendous work that has been done,” she said. “Ultimately the goal here is to get to ratification — that’s really the endgame.”
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