Impending Global Tax War Threatens Major Blow to Big Tech

A deadlock in Washington threatens to unravel a landmark tax agreement painstakingly negotiated by 140 countries over nearly a decade.

Analysts warn that the U.S.’s failure to ratify the deal could trigger a tax conflict among wealthy nations, severely impacting tech giants like Google, Apple, Meta, and Amazon.

The background: The Organisation for Economic Co-operation and Development (OECD) spent years negotiating a deal to close loopholes allowing multinational companies to avoid up to $240 billion in taxes annually. In 2021, the OECD finalized an agreement, known as “Pillar 1,” requiring companies to pay taxes in the countries where they earn revenue, regardless of their headquarters’ location.

However, the U.S. has not ratified the Pillar 1 reform, missing the June 30 deadline. While the Biden administration supports the plan, Senate Republicans oppose it, preventing the U.S. from approving the agreement. Under U.S. law, tax treaties require a two-thirds Senate majority for approval. Former President Donald Trump has indicated he would oppose the reforms if re-elected.

Other countries are not waiting. Canada has already implemented a tax on major tech companies, and New Zealand plans to introduce its own digital services tax by 2025.

Manal Corwin, director of the OECD’s Centre for Tax Policy and Administration, stated that negotiations continue, expressing optimism that a final agreement will eventually be reached.

Implications: Without a global agreement, countries may compete for revenue from large multinationals by lowering taxes, leading to a “tax war.” This would result in inconsistent tax codes worldwide, complicating matters for large tech companies.

Megan Funkhouser of the Information Technology Industry Council highlighted that stable and predictable policies encourage companies to invest and contribute to economic growth. Uncertainty and instability, however, deter such investments.

Job Market Resilience in the U.S.

The U.S. job market remains robust, with job openings unexpectedly increasing in May. According to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS), available jobs rose to 8.14 million in May from 7.91 million in April. Economists had expected a decline.

May’s JOLTS report marked a significant milestone, with the ratio of job openings to unemployed individuals falling to 1.22, matching pre-pandemic levels. This ratio has steadily decreased since reaching a record high in March 2022.

The latest jobs report is expected to be released on Friday.

FTC Blocks $4 Billion Mattress Merger

The Federal Trade Commission (FTC) has moved to block a significant mattress merger. The FTC unanimously voted to prevent Tempur Sealy’s acquisition of Mattress Firm, valued at approximately $4 billion.

The FTC argued that the merger would reduce competition, increase prices for consumers, and give the companies excessive control over the mattress supply chain. The agency noted that competing mattress suppliers would lose access to a crucial retail channel, affecting thousands of American workers.

The deal would have combined 3,000 stores and 71 manufacturing facilities, and was expected to close in the second half of 2024. Tempur Sealy’s brands include Tempur-Pedic, Sealy, and Stearns and Foster.