Global minimum tax or Pillar 2, its inclusion in the Bases Law

Consequently, this law is in line with pillar 2 by establishing that “the tax incentives granted through this regime will not produce effects to the extent that they could result in a transfer of income to foreign treasuries due to the application of a global minimum tax -whether through a profit inclusion rule, a rule of payments subject to low taxation or any other analogous measure- that is implemented or is aimed at implementing, in whole or in part, the second pillar of the Inclusive Framework of the Organization for Economic Cooperation and Development and the G-20 on base erosion and profit shifting.

The incentives that are introduced of a tax nature (1) include accelerated depreciation of fixed assets, deduction without time limit for tax losses, Income Tax rate on dividends reduced to 3.50% after 7 years.

In connection with other taxes The payment of VAT debit to suppliers and the AFIP (current ARCA) is legislated through tax credit certificates, exemption from import duties on imports of capital goods and consumer merchandise.

They are also established exchange incentives and, the projects are granted regulatory, tax, customs, exchange and regulatory stability for 30 years from the date of accession to the regime, this is of great relevance.

In addition to these benefits, other incentives are granted to projects that are classified as Long-Term Strategic Exports. These are the projects that position the country as a long-term supplier in global markets in which it does not yet have a significant participation, and that involve capital outlays in successive stages of at least USD 1,000 million.

In these cases, payments made to beneficiaries abroad for maritime locations or charters and engineering, acquisition and construction management services will be exempt from Income Tax, and the rest of the payments made to beneficiaries of the abroad will be subject to a reduced rate of 10.50% on the gross amount, unless a lower rate applies.

Payment obligation. GloBE rules

The obligation to pay the complementary tax is imposed on one of the members of the multinational group in accordance with a pre-established order. The primary obligation is on the ultimate controlling entity (2) by including profits taxed below 15% in its own profits.

It is the income inclusion rule referred to in art. 196 of the Bases Law. And if the UPE is located in a jurisdiction that has not implemented the GloBE rules, the obligation to collect the complementary tax will fall on any other entity of the EMN located in a jurisdiction that has implemented the GloBE rules, through the rule of exclusion of any deduction. tax to which he would otherwise have been entitled under domestic legislation.

The art. 196 of the Bases Law includes the rule when referring to “an undertax payment rule.” Finally, the GloBE rules give the low-tax jurisdictions themselves the option of collecting the complementary tax themselves (qualified domestic minimum top-up tax), thereby displacing the other two rules.

It is important to highlight that the RIGI is not in conflict with pillar 2 regulations. The Income Tax rates applicable to the net profits of capital companies and foreign branches located in the country are progressive from 25% to 35%. Additionally, dividends are subject to a withholding tax of 7%, which brings the final effective rate on distributed net profits to 30.25% when the corporate rate is 25%, and to 39.55% when it is 25%. 35%.

VPU profits

The profits of the Single Project Vehicles (VPU), which in the terminology of the Bases Law are the legal entities through which investments are channeled, are therefore subject to a tax rate well above the threshold that sets the GloBE rules for the application of the complementary tax.

The situation may be different for the payments that the VPUs, whose projects have been classified as Long-Term Strategic Exports, make to beneficiaries abroad for (i) international transportation maritime charters or locations for their exports; (ii) services included in engineering, procurement and construction management contracts; and (iii) other payments not included in (i) and (ii).

According to art. 185 of the Basic Law, the first two are exempt from Income Tax and the third is subject to a maximum rate of 10.5%. Consequently, to the extent that the service provider is located in a jurisdiction with low or no taxation, the profit generated by the provision of that service can contribute to the application of the complementary tax – top-up tax – of the rules. GloBE. And as a result of this, the aforementioned tax incentives do not produce effects, in the terms of art. 196 of the Bases Law.

Bomchil (2024) (3) believes that although the law has provided for it, the question that arises is whether in practice it can be determined whether the complementary tax has been transferred to a foreign treasury and, if so, to what extent it happened. And if it cannot be determined, the non-transfer of taxes to foreign treasuries would not be fulfilled (not a minor issue)

Final Comments

• The OECD/G20 GloBE rules are a promising framework, but they need to be harmonized and applied consistently in all countries that adopt them. to avoid tax loopholes that can be exploited by companies.
• The implementation at the European level of global minimum taxation is already a fact in the European Union (Jáuregui 2024) (4). The creation of an IMG on the profits of MNEs has brought a changing criteria for international taxation because it forces multinational corporations to pay a minimum level of taxes, regardless of where they are based or operate.
• The United States applies the GILTI (5), a minimum tax that meets the standards of pillar 2. On the other hand, China has not yet incorporated the Globe standards, nor will India see how it advances within these countries in such a way that the tax incentives to these areas.
• Added to this incomplete scenario is the increase in uncertainty that differences in implementation and interpretation at the jurisdictional level can generate.. Indeed, as multinational groups begin to carry out the calculations corresponding to the minimum global taxation, it is possible to anticipate an uncertain scenario in which the tax administrations of the jurisdictions part of the inclusive framework will have to reconcile their positions regarding the implementation of Pillar Two. .
• The technical problems that the Complementary Tax will bring in practice must also be taken into account for its implementation, not only for the purposes of facing the new declaration or information obligations (6) by multinational groups, but also to issues such as the treatment of tax losses, special tax regimes.

Latin America Case

Many countries in the region rely on tax incentives, using tax exemptions and reductions to attract foreign direct investment.

The implementation of the IMG, with a minimum tax of 15%, would eliminate the competitive advantage of these incentives, making the country less attractive compared to others in the region. Therefore, the low adhesion within Latin America demonstrates a fhigh political priority in this regard. Only Brazil and Argentina have legislation on pillar 2. It has not yet been implemented in any of the mentioned states.

Given that several countries prioritize fiscal policies focused on redistribution and internal subsidies, rather than the adoption of international tax standards such as the Global Minimum Tax. In addition, it has been noted that pillar two requires advanced capabilities to calculate consolidated global income, apply accounting adjustments and coordinate with other jurisdictions. The vast majority of Latin American countries lack the robust tax infrastructure necessary to administer these complex regulations.

Prominent doctrine (7) has criticized pillar 2 given that it is interpreted that the greatest benefits of these international tax reforms will fall on high-income countries, where the headquarters of the main multinationals are located. Developing countries, including those in Latin America and the Caribbean, will receive limited benefits. In this sense, the United Nations (UN) (8) approved in 2024 a UN Tax Convention for the end of 2027 and two other protocols that will cover key issues, such as the taxation of multinational companies, taxes on wealth, measures environmental and taxation and the digitalized economy.

Although the implementation of Pillar 2 is a fact today, it still raises questions regarding whether this works without there being a concrete plan to complete the structure of Pillar 1, considering that this is the one that acts on the changes imposed after digitalization, making Pillar 2 a support for the existence of the first pillar. We ask ourselves, can one pillar function without the other? Unlike Pillar 1, Pillar 2 does not require widespread adoption to be effective. Is a critical mass of large economies enough to make it work?

These are questions to which I have not yet found answers. I’m still working on it.

PhD in Economic Sciences UBA

(1) In addition to the already mentioned maximum rate of 25% in Income Tax

(2) (UPE – Ultimate Parent Entity)

(3) Bomchil, Máximo (2024) https://abogados.com.ar/el-rigi-y-el-impuesto-minimo-global/35302

(4) Jáuregui (2024) “Changing tax paradigm in relation to digital evolution” in the Income Tax – Foreign Beneficiaries Editorial Edicon

(5) GILTI is a category of income earned abroad by U.S.-controlled foreign corporations (CFCs) subject to a minimum foreign income tax.

(6) GloBE Information Return

(7) Read the publication “Challenges of Global Taxation: Towards global taxation for Latin America and the Caribbean” cited in the bibliography

(8) UN adopts ambitious mandate for three legally binding global tax agreements. https://www.eurodad.org/after_landslide_vote_un_adopts_ambitious_mandate_for_three_legally_binding_global_tax_deals