240 billion dollars a year: the US stalemate could jeopardise a major tax deal

A political stalemate in Washington could destroy a landmark tax deal that has been carefully negotiated between 140 countries for more than a decade.

Some analysts warn that the failure of the United States to ratify the deal could lead to a tax war among the world's richest nations, hitting tech giants like Google $GOOG, Microsoft $MSFT, Apple $AAPL, Meta $META and Amazon $AMZNhard .

What's going on?

The Organisation for Economic Co-operation and Development (OECD) has been working for years on an agreement among its member countries that would close loopholes allowing large multinational corporations to avoid paying taxes of up to $240 billion a year.

In 2021, the OECD came up with an agreement that was signed by all parties involved. This reform, called 'Pillar 1', would simply require companies to pay taxes in the country where they made their money, regardless of whether they are based there.

It took more than a decade of work by the OECD and other parties to reach this agreement.

Where is the problem?

Pillar 1 reform was due to be ratified by 30 June. However, this has not happened.

Although the Biden administration generally supports the plan, Senate Republicans oppose it, and a divided Senate has blocked the United States from ratifying the agreement. (Under the U.S. Constitution, tax treaties require the advice and consent of the Senate with a two-thirds majority vote, according to the Senate Finance Committee website.)

Former President Donald Trump, meanwhile, has indicated that he would not support these reforms if re-elected to office.

Other countries, however, are not waiting for the outcome. Canada recently imposed a local tax on the world's largest tech companies, something the OECD has sought to avoid. New Zealand has also announced it will introduce its own digital services tax on large multinationals from 2025.

Manal Corwin, director of the OECD's Centre for Tax Policy and Administration, says negotiations are still ongoing.

"Countries are still negotiating, precisely because we are making progress," she said in a statement on Monday. "As we reach each of these milestones, whether or not we successfully conclude the negotiations by the deadline, we are getting closer to our goal." she added.

What does that mean?

If no global agreement goes into effect, some countries will start competing for revenue from large multinationals by cutting taxes in a so-called "tax war."

It also means that big tech companies will face inconsistent tax rules around the world as national taxes proliferate (see Canada and New Zealand).

"When companies feel secure and can predict where policy is going and what the global financial outlook will be for the foreseeable future, they are much more confident in investing," said Megan Funkhouser of the Information Technology Council, a group representing the technology sector.

If taxation and global policy toward digital companies is "uncertain, unpredictable and unstable," she said, companies may not want to "invest, contribute to economic growth and create and sustain jobs."

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