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TaxEDU | 1
What is the Global Tax Deal and what
impact will it have on U.S. and foreign
Global taxes in this case study refer to taxes levied
on U.S. and foreign multinational companies.
These companies my be headquartered in one
country (and tax jurisdiction) but have operations
such as manufacturing or sales in other countries
and tax jurisdictions.
Some multinationals strategically place their
operations in a way that minimizes their tax
burden, or how much they owe in corporate
income taxes (CIT) to the countries they operate
in. Oftentimes, low-tax jurisdictions are part of
these strategies to minimize CIT liability. This is
what the term tax haven refers to.
The Base Erosion and Profit Shifting (BEPS)
project in 2015 and later Digital Services Tax
(DST) proposals which came on the scene in
2018 were attempts to change tax rules for
multinational corporations and address cross-
border tax avoidance.
Cross-border tax avoidance occurs when
multinational companies seek low-tax jurisdictions
or exploit mismatches between tax systems to
reduce their overall tax burden. Countries that
are reliant on the CIT suffer more from this type
of avoidance, and the issue can only be fully
addressed by countries working together to close
gaps in their tax codes and limit the use of tax
The OECD and G20 countries worked together
to adopt an action plan to combat BEPS, with a
focus on limiting the ability to avoid taxation. The
15-point plan also sought to avoid introducing
double taxation as a remedy to the tax avoidance.
DSTs were meant as temporary policies targeted
at large, digitalized business models. By targeting
the digital presence of a multinational tech
company instead of the location of its physical
offices (think streaming services, social media, or
online retailers), governments saw an opportunity
to catch lost global corporate income tax revenue
generated by companies that operate worldwide
but only technically owe taxes in a home cou