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Tax reform for tech companies

How international tax reform could impact U.S. tech

RFP
Two business women discussing U.S. tech companies now have some new tax factors to weigh as they view the global market.

The G7 recently published a high-level political agreement on international tax reform, which was quickly detailed and supported by the OECD and G20 working group. The agreement proposes adapting the global tax system to the digital economy by building on two pillars that essentially:

  1. Allocate taxable profits to the markets where customers are based
  2. Set a global minimum tax rate of 15%, higher in some jurisdictions

The proposed changes will impact organizations around the world, but they have unique implications for many in the technology industry — especially in the U.S., where companies are already considering tax rate changes proposed by the Biden administration.

 
Melanie Krygier“Where this floor is set is an important detail. If it is too low, it could stifle innovation, particularly among dynamic mid-market companies in the U.S.” —   Melanie Krygier
Partner, M&A Tax Services
Many tech firms headquartered in the U.S. may face higher taxes for their non-U.S. functions or customer markets, since the sourcing of where profits are taxed is expected to change. Companies may not have the same control over global tax planning that has existed historically.

The biggest impact might be felt by mid-market firms that are considering international expansion but could struggle to comply with the new requirements. “Where this floor is set is an important detail,” said Melanie Krygier, Partner, M&A Tax Services. “If it is too low, it could stifle innovation, particularly among dynamic mid-market companies in the U.S.”

The G7 international tax proposal was largely anticipated, and largely well received. However, as U.S. tech companies adjust their strategies for U.S. tax changes, they should also consider how the new proposal adds more factors to the mix of global tech competition.

Contacts:

Melanie Krygier Melanie Krygier
Partner, M&A Tax Services
T +1 415 318 2202


Chris Summer Chris Summer
Managing Director, International Tax Services
T +1 704 632 3499