What the New Global Minimum Tax Means for Your Small Business – LJ Suzuki of CFOShare

At the beginning of July, Treasury Secretary Janet Yellen announced that a group of 130 nations agreed to a global minimum tax on corporations as part of a wider agreement to overhaul international tax rules. On today’s show, we’re pleased to welcome back small business expert, serial entrepreneur, and founder CFOShare, LJ Suzuki, to discuss the global minimum tax and how it affects small businesses.

Transcription:

Jim Fitzpatrick:
Thank you for joining us again, LJ.

LJ Suzuki:
Thanks for having me again, Jim.

Jim Fitzpatrick:
Sure. So talk to us. What, for those that are watching, what is a global minimum tax? And how does it work?

LJ Suzuki:
Yeah, so this is getting pretty complicated and is usually outside the scope of what small businesses think of. However, the global minimum tax may have an effect on your small business. So bear with me and I’ll explain it to you.

LJ Suzuki:
You’ve probably read about Apple and Facebook and even medical device companies like Medtronic and Johnson & Johnson that relocate their headquarters to a place like Ireland or Switzerland. And in doing so they avoid hundreds of millions or billions of dollars worth of taxes. The global minimum tax is an attempt to cut out that loophole so that these large corporations can’t simply relocate their headquarters and save lots of money. It’s essentially an agreement by all of the developed countries to charge some minimum tax threshold regardless of where your headquarters is based.

Jim Fitzpatrick:
Okay. Okay. And when you say the headquarters base, it could be just a PO box, right? I mean, literally don’t have to have a whole contingency or a staff or offices or what have you. It could literally be just where you register your company or to say “These are our headquarters.”

LJ Suzuki:
That’s absolutely correct. In today’s world, it’s very much just a virtual headquarters with some minimal amount of staffing and a legal presence. And that’s what constitutes it.

Jim Fitzpatrick:
Wow. That’s that? That’s incredible. So what does it mean for small businesses specifically?

LJ Suzuki:
Right. I like to break this down into two categories of small businesses, those who compete with large corporations and those who have large corporations as their customers.

Jim Fitzpatrick:
Okay.

LJ Suzuki:
Let’s say that you are a small manufacturer that supplies devices to Johnson & Johnson, or to some big medical device company like that. They are your end customer. Well with them now having to pay more taxes, that’s going to reduce their profits. And it’s going to put a squeeze on them that they’re going to look to get that money back in other places. Most commonly, they look to get it back in their supply base. So if your customer is one of these large tech companies, or one of these large pharmaceutical or medical companies, you’re most likely going to face some pressure on them either to reduce your prices, or to reduce the amount of inventories that they hold of your products, which means that you are going to need to hold more inventory and probably adopt something like a Just In Time system, or through other things like supplier agreements, where they push out your terms to net 90, net 120 days. Things that put pressure on your cash.

LJ Suzuki:
So those are really the people that are dealing with the worst of this is small businesses whose customers are these large corporations

Jim Fitzpatrick:
And talk to us about the potential benefits.

LJ Suzuki:
Right. If you are a small tech company who is competing against larger tech companies, this is actually a major benefit for you, because you most likely are not able to take advantage of relocating your headquarters to Ireland in order to get those tax savings. You’re a small business. You don’t have a fleet of tax accountants that are figuring out these things for you.

LJ Suzuki:
And so this rule is actually going to level the competitive playing field for you in that particular dimension, and make it easier for people like Amazon and Google and Facebook to not be able to get that edge on you. So if you are a tech startup or a small technology company, this is a very good law for you and it’s going to help you be more competitive.

Jim Fitzpatrick:
Yeah, for sure. And is this a law that is already in place? And is it retroactive? Does it go back a couple of years? Talk to us about that.

LJ Suzuki:
It is not in place yet. The closest that we’ve come to is an agreement upon the design of the law by the Biden administration and the G-Seven Nations, so the richest seven nations in the world. And so they’re now taking that back to their governments and they’re trying to get that to pass.

Jim Fitzpatrick:
And this is where the critics say that this is unrealistic because you need to get a coalition of several governments to agree to it. And only if they all agree to it, does it actually work. So there’s a long fight in Congress, in our country, as well as a long fight in the European Union and other places.

Jim Fitzpatrick:
I think the earliest that we’re going to see it pass is going to be in September or October of this year. So don’t rush and panic and start thinking about this quite yet. We still have a long road ahead of us. But if you are one of those small business owners that was in those categories I mentioned, either competing with tech companies or supplying tech or medical companies then starting in the fall time, start paying attention to the headlines, to see whether or not this passes and consider whether you need to strategically adjust your business in reflection of this new international tax law.

Jim Fitzpatrick:
Or if you are a small business that was interested in taking advantage of this little IRS loophole and setting up headquarters in the Netherlands or in Ireland, as you say. Think twice about that too, right?

LJ Suzuki:
Yeah, absolutely. You know, it’s a pretty big deal to create an entity in a foreign country. There’s a lot of legal paperwork. There’s a lot of tax compliance paperwork. But if you’re a 50 or a hundred million dollar business, it might be worth it for you. You might be able to recoup that savings. If you’re thinking about kicking off that process right now, go ahead and pump the brakes, wait and see what happens with this global minimum tax.

Jim Fitzpatrick:
Right. Wow. And what can businesses do to prepare for something like this? If anything?

LJ Suzuki:
Yeah. If you are going to be one of the companies that is hurt by this, because you’re supplying medical or tech companies, then now is a great time to start investing in cost savings measures that are going to shorten your lead time, lower your costs. Do things like that, that will allow you to meet those compliance standards as they come down. In fact, you actually might be able to take market share from your competitors that were not planning ahead and being as responsive.

LJ Suzuki:
If on the other hand, you are one of the small tech companies that’s competing against people that are taking advantage of the global tax discrepancies. Then when that passes, that’s a really great time to ramp up your marketing and your sales efforts to try to take more market share from those companies who now have less cash, and are going to have to pull back on their budgets.

Jim Fitzpatrick:
No question, Hey, let’s switch gears a little bit while I have you here today and talk to you about PPP. We get a lot of questions about the PPP program and what’s forgivable and what’s not. And what has to be accounted for on your taxes for 2020 and such. Talk to us a little bit about maybe some of the updates that are out there or what you’re hearing.

LJ Suzuki:
Yeah, yeah. Usually the biggest question on everybody’s mind right now is when do I have to get my PPP loan forgiven by? Or a lot of people say “My bank’s portal is not even open. How can I get my PPP loan forgiven?”

LJ Suzuki:
Okay. So there’s no deadline for applying for forgiveness. Let’s just start with that. Okay. You could literally wait five years and apply for forgiveness then, and still receive that forgiveness.

Jim Fitzpatrick:
You just lowered the anxiety of a lot of our viewers with that–

LJ Suzuki:
People are unnecessarily stressing and losing sleep about it. But here’s what’s going to happen is, you need to start making debt payments on your loan beginning 10 months after the end of your 26 week period. So for most people that’s actually coming up right now for round one in like July or August. If you got your loan back in like April or May of last year, you’re approaching that deadline now. Once you apply for forgiveness, you don’t have to make the payments until they render an opinion. So now is a good time to apply for forgiveness for round one and most small business owners. I know have gotten that out. Round two on the other hand, you have a long wait still. You’re not going to need to start making those payments until 2022. So just relax and don’t worry about it.

Jim Fitzpatrick:
Yeah. That’s good. That’s good news. And also the SBA is out there still giving money out aren’t they? In different types of loans, but there’s still, from what I understand a lot of money that’s sitting in the accounts of the SBA to help small businesses, right?

LJ Suzuki:
There are a number of programs that were released with the latest round of funding back in December of last year that people have not been taking advantage of. One of the programs was actually, it’s called The Navigator and it’s a resource that’s designed to help small businesses find money for themselves. So it’s a great idea to just go to the SBAs website or call your local SBA office and just find out if you’re eligible for a second round of idol or a shuttered venue grant or something like that.

Jim Fitzpatrick:
Yeah. They are out there giving away … I say giving away, but sending up billions of dollars for small business owners every, every week. And if you are a small business owner, as many of you are, if you’re watching this program, help could be just a click away, but you’ve got to be willing to do the legwork and find out what is out there. And I think you’ll be pleasantly surprised to see that there’s billions of dollars out there. You just got to know what to do. You’ve got to cross the T’s and dot the I’s as they say, but you could be sitting in a pile of cash if you do it right. Right?

LJ Suzuki:
And this is where it pays to have a financial advisor on your team, or a financial professional that’s familiar with these different programs and can proactively reach out to you and say, “Hey, you’re eligible for this. I think we should apply.”

Jim Fitzpatrick:
Yeah. Yeah, for sure. Without a doubt. Speaking of which L LJ Suzuki, CEO of CFOShare, fractional CFO company and a small business expert. I want to thank you so much for joining us. Once again, on the Atlanta Small Business Show. I know that our viewers and subscribers will get a lot out of your visit here today. So thank you.

LJ Suzuki:
My pleasure, Jim. Thanks for having me.

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