Mondial Chart of the Week 📈
The Taxman is Coming for Big Tech!
13 June 2021
What this chart shows After nearly a decade of talks, G7 finance ministers have agreed to back a global tax reform meaning that multinationals would pay tax of at least 15% in the countries in which they operate and generate profits. A two-pillar global solution was agreed in principle to tackle the tax challenges that have arisen as a result of an increasingly globalised and digital economy.
The first pillar would require the most profitable companies to pay more in tax (at least 20% of their profits exceeding a 10% margin) in countries where they generate sales and not just where they book their profits. The second pillar sets out a global minimum corporation tax rate of 15%. The above chart shows the estimated tax revenue generated as a result of the two pillars, with pillar one bringing in between $5bn and $12bn, whilst pillar two could generate between $42bn and $70bn. The agreement will now be discussed in further detail at the G20 meeting in July to help bring other countries on board. Why this chart is relevant The first pillar seeks to address flaws that multinationals have legally exploited to avoid larger tax bills and to ensure that these large companies – especially US tech giants Amazon, Facebook, Google and Apple – pay more tax in countries where they generate revenue. A global minimum tax level established by the second pillar would prevent countries from undercutting each other to improve their relative appeal for multinationals.
It is difficult to assess the specific impact at this stage on the tech space over the long-term but it’s rational to anticipate that big tech leaders could face significantly larger tax liabilities in the future. This poses a question over future earnings and could lead to some share price nationalisation with valuation multiples already looking quite stretched.
Source: OECD, Momentum Global Investment Management Research Date: June 2021
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