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Hard-won tax reform may not happen, and that's not good for Big Tech.
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Deadlock in Washington could derail a landmark tax agreement painstakingly hammered out by 140 countries over nearly a decade.
Some analysts say the U.S. failure to ratify the agreement could set off a tax war between wealthy countries that would hit tech giants such as Google, Apple, Meta and Amazon particularly hard.
what's happening: The Organisation for Economic Cooperation and Development (OECD) has been working for years to negotiate a deal among its member countries to close loopholes that allow large multinational companies to avoid paying up to $240 billion in taxes each year.
In 2021, the OECD finalized a draft agreement signed by all parties. The proposed reforms, known as “Pillar 1” reforms, would require companies to pay tax in the country where they make profits, regardless of where they are headquartered.
It has taken more than a decade of work by the OECD and associated organisations to get there.
problem: The Pillar 1 reforms were supposed to be ratified by June 30. But that did not happen.
The Biden administration largely supports the plan, but Senate Republicans are opposed, and a divided Senate has blocked the U.S. from ratifying the agreement. (“Under the U.S. Constitution, tax treaties require the advice and consent of the Senate and are approved by a two-thirds majority vote,” the Senate Finance Committee's website says.)
Meanwhile, former President Donald Trump has indicated he would not support reform if re-elected in November.
Other countries aren't waiting to see the results: Canada recently introduced a local tax on the world's largest tech companies, something the OECD treaty sought to avoid, and New Zealand has also announced it will introduce its own digital services tax on large multinational companies from 2025.
Manal Corwin, director of the OECD's Centre for Tax Policy and Administration, said negotiations were still ongoing.
“The fact that countries are sitting at the negotiating table is precisely because we are moving forward,” he said in a statement on Monday. “With each of these milestones reached, we are getting closer to the finish line, regardless of whether we reach a successful conclusion by the set date,” he said. “That is why commitment remains high and we are optimistic that (the group) can achieve a final agreement.”
What it means: If a global agreement does not come into force, some countries will begin to cut taxes in so-called “tax wars” and compete for revenue from large multinational corporations.
It also means big tech companies will have to contend with inconsistent tax laws around the world as national taxes proliferate (see Canada and New Zealand).
“When businesses feel reassured and can predict the direction of policy and the outlook for the global economy in the near future, they're going to be much more confident about investing,” said Megan Fankhauser of the Information Technology Industry Council, a trade group that represents the tech industry.
If taxation and international policies towards digital companies are “uncertain, unpredictable and volatile”, businesses may be less willing to “invest, contribute to economic growth and create and retain jobs”, she said.
U.S. job openings unexpectedly rose in May, signaling continued resilience in the nation's labor market, my CNN colleague Alicia Wallace reports.
The latest Job Openings and Labor Turnover Survey (JOLTS) report released by the Bureau of Labor Statistics on Tuesday showed job openings jumped to 8.14 million in May from a downwardly revised 7.91 million in April.
Economists had expected job openings to fall to 7.91 million, according to consensus estimates from FactSet.
The growth in job advertisements may be quite volatile, The May JOLTS report is It marked an important milestone for the U.S. labor market: The ratio of job openings to unemployed people fell to 1.22, matching the figure in February 2020, one month before the pandemic lockdowns that shocked the global economy.
The ratio has been steadily declining since hitting an all-time high of 2.0 in March 2022, according to JOLTS data.
The Bureau of Labor Statistics is scheduled to release its latest jobs report at 8:30 a.m. ET on Friday.
The Federal Trade Commission is taking a hard line against mattress mergers.
The agency voted unanimously on Tuesday to block mattress maker Tempur Sealy's acquisition of Mattress Firm, according to my CNN colleague Lamisha Maruf.
In May 2023, Tempur Sealy, the world's largest mattress supplier and manufacturer, agreed to acquire the largest U.S. bedding retailer for approximately $4 billion.
The FTC has authorized a federal lawsuit to block the acquisition.
The commission said the proposed deal would stifle competition, raise prices for mattress buyers and give the companies “enormous power” in the mattress supply chain. The FTC also said the documents made clear that competing mattress suppliers would lose access to their most important retail channels. These suppliers employ thousands of American workers, the FTC said.
The deal would have resulted in the combined company having 3,000 stores and 71 manufacturing facilities and was expected to close in the second half of 2024. Tempur Sealy's portfolio includes Tempur-Pedic, Sealy and Stearns & Foster.
