The proposal made by the G20 countries at the recent G20 summit in Rome, seeks to level the tax collection on transnational corporations, reverse the tax decline of recent decades, and prevent tax evasion in tax havens. The initiative has been endorsed by 136 countries, representing 90% of the world’s GDP, and is planned to be launched in 2023. The implementation will be the duty of each individual country, after its ratification, according to the country’s own laws. A large number of Latin American countries support the initiative, including all those in which Englobally Latin America has a presence (Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Panama and Peru), as well as Spain.
The proposed tax system will be based on two pillars.
- Large international corporations with a turnover of more than 750 million euros will have a 15% income tax rate.
- That the income paid reaches the countries where the income is earned, regardless of where they reside for tax purposes. This measure will apply to corporations with ag global turnover of more than 20 billion euros and a profitability of more than 10%. This means 25% of the profit above the 10% threshold will be reallocated to market jurisdictions.
The agreement also includes, once in place, the removal of existing taxes on digital services, as well as the commitment not to introduce taxes of the same type in the future.
This change is due to the need for states to tax multinationals that operate in numerous countries and who establish branches in jurisdictions with low tax rates. This means that they pay less tax, even if most of their profits come from income earned in other countries. It is a hard fact that more and more revenues coming from intangible services and digital services have migrated to places known as tax havens.
The pact avoids this dynamic by limiting the race to the bottom by setting a minimum tax rate and forcing companies to pay taxes in the jurisdiction where they earn their profits.
Supporters of this initiative point out that this is a way to homogenize the international tax system, preventing large corporations from shifting their operations from one country to another to enjoy tax benefits.
The initiative also has detractors who point out that the states always find incentives that distort the norm, such as subsidies, exemptions, credits or other tax mechanisms, modifying the effective rate paid by companies.
There are also questions about the future strategy of tax havens.