over 2 years ago • 3 mins
The world’s seven leading developed nations agreed to raise taxes on multinational companies over the weekend, and even Big Tech might struggle to escape this one…
What does this mean?
After plenty of discussion, the G7 agreed on a new deal that calls for a tax rate of at least 15% on multinationals. More importantly, it’ll tax them in the countries where they actually make money, not just where they’re headquartered. That’ll help stop companies evading billions in tax by moving profits to places with favorable policies. We’re looking at you, Ireland.
But before you get too excited about sticking it to the untouchables, it’s worth pointing out that this deal has a long way to go. It still needs to be approved by the G20 next month, as well as by the 139 countries involved in talks with another major economic organization, the OECD.
Why should I care?
For markets: This is Big Tech’s big tax.
Major tech companies make money in multiple countries, but they’ve only ever had to pay taxes where they’re based – a contradiction Britain, France, and Italy have tried to resolve with their own digital services taxes. But this deal will see the 15% tax rate applied to all profits, including those the multinationals make from online sources. So that inevitably means higher tax bills and lower profits for the likes of Amazon, Google-parent Alphabet, and Facebook.
Zooming in: Alphabet’s got fine written all over it.
It’s not a great start to the week for Alphabet, which was just hit with a $267 million fine by France for abusing its dominance in the online advertising market. The tech giant quickly agreed to pay the fine, and promised it’d change the way its online ads business works around the world. Of course, that fine was probably pocket change compared to the money the rule-break brought in, which might be why the news came and went without a hiccup in Alphabet’s share price.
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America’s top financial official – and the former head of its central bank – had a message for her successor on Sunday: higher interest rates could actually be good for the country’s economy.
What does this mean?
Plenty of investors are concerned that the US Federal Reserve might soon start unwinding pandemic-driven economic support measures, including the rock-bottom interest rates that make borrowing super cheap. But the Fed’s former head honcho – now US treasury secretary – said in an interview over the weekend that higher interest rates might not be so bad.
After all, the US president’s $4 trillion spending plan should provide a long-term boost to the American economy. And if higher inflation – and therefore higher interest rates – are the short-term result, it may be a price worth paying. Higher rates would also give the central bank more firepower in the event of an economic slump: it could lower them again to encourage more activity if it needed to.
Why should I care?
For markets: Insider information?
If the current head of the Fed had uttered these comments, we’d be witnessing a bond market selloff similar in scale to 2013’s “taper tantrum”. Thankfully, the US treasury secretary holds no sway over the country’s central bank. Still, her knowledge of its inner workings is arguably unparalleled among outsiders, and if the Fed’s top brass today are thinking along the same lines, investors might be confronted with interest rate rises sooner than expected.
Zooming out: The chips are still down.
One of the biggest questions for the Fed right now is whether high US inflation is a fleeting thing, driven by temporary factors like shortages of the microchips used in many consumer tech products. But that one might not be so temporary after all: one of the world’s biggest electronics manufacturers warned on Sunday that the global undersupply could last until 2023.
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