Multinational Companies Face Higher Taxes This Year

Turning Tax Tides

Companies operating internationally will have to pay a 15% global minimum tax starting in 2024. This was the result of a 2021 tax deal organized by the Organization for Economic Cooperation and Development (OECD).

But not all countries have embraced the agreement. While 137 nations are planning on honoring it, the U.S. hasn’t implemented it.

Here’s how that could affect American multinationals.

Dual Tax Dilemma

The deal essentially means that companies now need to pay at least 15% in corporate taxes even if they paid much lower rates before. But Congress hasn’t changed the U.S. rules on paper. And neither has China.

Some American firms have historically taken advantage of foreign tax credits, a tax break allowing them to subtract taxes paid abroad from their U.S. tax liability. When foreign taxes were lower, this strategy helped many businesses save money. But as taxes are set to increase abroad without a proportionate reduction in liability stateside, the same companies that have already maxed out their foreign tax credits will now have to pay taxes in separate places on the same income.

Domino Effect

Businesses including Johnson & Johnson (JNJ) have already warned investors their tax liabilities will be higher in 2024 thanks to the policy change: The company is predicting a 1.5% hike in its overall tax rate, while the OECD predicts that overall businesses will see an increase in tax liabilities between 6.5% and 8.1%.

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