27-06-2025
Tech billionaires to reap the rewards of Trump's strongarm tax tactics
The world's richest are about to get a whole lot richer.
Donald Trump has just engineered a spectacularly lucrative arrangement for his big technology backers, the "broligarchs" who backed his run to the White House.
While most of the world has been focused on tariffs and the potential havoc they could wreak, it was another T word that dominated the American president's strategy to reward his biggest supporters.
Tax.
For close to 20 years, the Organisation of Economic Co-operation and Development has been diligently working on a plan to ensure multinational firms pay their fair share of tax in the countries in which they operate.
A little over 18 months ago, they finally secured an agreement from members at a meeting in Singapore.
The plan, endorsed by the Biden administration, was that all multinationals would pay a minimum of 15 per cent tax. It didn't seem too onerous an impost.
Australia, a primary force in the movement for more than a decade, formally signed the proposal into legislation just before Christmas last year.
That's now out the window.
As part of an agreement reached on Friday our time, the US will junk its planned "retaliatory tax" on nations it deems unfriendly to American corporations.
The quid pro quo? The G7 nations — and most other countries as a result — should tear up their plans to tax American multinationals.
It went largely unnoticed during the presidential inauguration back in January.
Within hours of his long and rambling speech, the new president signed an executive order announcing America's withdrawal from the OECD initiative to standardise global corporate tax rates and limit tax avoidance.
The writing was on the wall.
Suddenly, it all became clear at the extent of the power of the four figures — Elon Musk, Jeff Bezos, Mark Zuckerberg and Sundar Pichai — nestled up behind the new president at the podium seated in prime position in line with his new cabinet, and all looking as though they'd just eaten the canary.
United by a common goal, enriching themselves, it was a statement about power, influence and American hegemony.
Less than six months in and Donald Trump has delivered for them in spades.
Multinational tax avoidance has always been a problem, particularly in resource rich countries like Australia. But in recent years, it has reached new heights as the big technology companies have turned it into an art form.
The traditional standard bearer for tax avoidance Down Under was oil giant Chevron.
Back in 2021, the oil giant paid $30 in tax. Yes, you read that correctly. $30.
That was on revenue of $9.2 billion and, even then, it wasn't happy, arguing it shouldn't have to pay anything as it lost $1.8 billion that financial year. A subsequent clampdown by the Australian Tax Office saw it cough up a couple of billion in tax the next year.
That followed years of legal action between the company and the ATO over its reluctance to pay tax which Chevron finally abandoned in 2018.
Like many multinationals, Chevron shifted its profits offshore by borrowing money from a Chevron entity at punishing rates of interest, then claiming that as a tax deduction.
The big tech companies employed a more sophisticated model.
Aided by the fact that they manufactured different components in different countries, if they manufactured anything at all, and sold their wares across the globe, it was easy to justify operating out of low taxing destinations where profits could be shovelled.
One way was to establish a marketing firm in a low taxing country, that charged related companies in other parts of the global network exorbitant fees.
Or there was the preferred strategy of establishing a firm that owned the intellectual property in a tax haven, which then charged its cousins in high taxing countries exorbitant fees for using technology derived from the US parent.
For years, the Australian arms of the big tech outfits generated massive revenue streams but made little profit here and, hence, paid hardly any tax. In many cases, most of the money was shunted off to Ireland.
Amazon, for instance, in 2018 notched up sales here of more than $1 billion but paid just $20 million in tax.
It since has begun paying substantially higher tax payments but continued to book huge amounts of Australian revenue through Singapore.
If President Trump's executive order was manna from heaven for the broligarchs, this week's agreement for G7 nations to abandon the 15 per cent minimum tax has been a gift from God.
Trump loves to insert the word "deal" into almost every sentence and on Friday his Treasury Secretary Scott Bessent was channelling his boss on Elon Musk's X.
"President Trump paved the way for this historic achievement. On January 20, the President issued two Executive Orders instructing Treasury to defend US tax sovereignty, and as a result of President Trump's leadership we now have a great deal for the American people."
How did Bessent manage to convince the G7 to abandon years of toil on a standardised global corporate tax rate? Some might call it negotiation. Others may see it as coercion.
It involves America abandoning a little heard about clause in Trump's Big Beautiful Bill, the big spending, tax cutting bill that threatens to blow out America's budget deficit.
Section 899 from that bill was penned as a new line of attack on what the president deems to be unfriendly nations.
It deals with "retaliatory taxation". Companies and investors from "discriminatory foreign countries" buying or investing in the US could be slugged with escalating increases in US federal income tax and withholding tax.
The tax penalty would rise by up to 5 per cent a year to a maximum of 20 percentage points above existing treaty rates.
While that all sounds a little esoteric, it put Australian super funds and big corporations into a mild state of panic.
Our super funds have roughly $400 billion invested in the US, most of it on Wall Street and much of it in America's big tech firms.
The prospect of increased taxes would thwart those returns into the future and damage the retirement incomes for Australians.
While it delivered a mighty big stick for Trump in any negotiations with Australia, it wasn't without dangers for him at home.
US investment firms, already worried about the exodus of global capital from US markets, were becoming increasingly concerned that if the new tax was ever enacted, it could ultimately cause a run on US government bonds and cause a credit crisis.
That crisis has been averted for now. But it has come at the expense of America's reputation and role as the moral standard-bearer in the global economy.
