- First, NO TAX IS CREATED; An effective rate floor is established for corporate income tax.
It is the materialization of the objective of Pillar 2 of Action 1 of the BEPS Project promoted by the OECD (Organization for Economic Cooperation and Development) that implies establishing a minimum taxation at the global level to avoid the residual effects of BEPS maneuvers, that is, a “floor” to apply income tax to companies (the proposal of the G7 first, and the G20 now, is 15% effective rate).
(BEPS: “Base Erosion and Profit Shifting”, in Spanish “Erosion of the taxable base and transfer of profits”).
- Second, it IS NOT A NEW; The OECD has been developing this concept since 2013.
The BEPS project is an initiative launched by the OECD as of 2013 that tries to combat these practices of tax avoidance at the international level.
Argentina has been part of the BEPS initiative since its inception. Our country has been serving since 2001 as an Observer member of the OECD Committee on Fiscal Affairs and since June 2014 it is an Associate member.
- Finally, THIS “FLAT” OF EFFECTIVE RATE IS ALREADY APPLIED IN THE DOMESTIC LEGISLATION OF OTHER COUNTRIES.
The introduction of the so-called Income Inclusion Rule to Pillar 2 of Action 1 (Income Inclusion Rule) is similar to the GILTI standard.[1] of the United States, according to which the parent company of the Multinational Group must pay tax in its country of residence for the difference between the tax actually paid in the low-tax countries where its subsidiaries operate and the minimum tax agreed between the members of the Framework Inclusive.
What is the US GILTI standard ?: It is the US regulation on controlled companies GILTI (Global Intangible Low Taxed Income) that works as follows:
- Headquarters in the United States of the multinational group must pay an additional tax in the United States if the effective global tax rate is less than 13.125%
- All the income of the subsidiaries with a participation of 10% is computed, except the income that is already taxed cfr. “Subpart F” (CFC rules).
iii. Expenses for amortization of tangible assets and a proportional part of the tax credits paid by foreign subsidiaries are deducted.
- To determine the effective tax paid, the Multinational Group must determine the income obtained in each jurisdiction following international accounting standards and determine the total tax paid on those income.
Clearly, it is a proposal promoted by developed countries aimed at large companies (mainly technology) taxing a “floor” of effective rate of 15% of corporate income tax in the countries of “residence” of the companies.
Example: If the global effective tax rate for a US technology company is less than 15% in Ireland, you will pay the difference between that lower rate and the 15% rate in the United States (country of residence).
Argentina and its relationship with the OECD
Our country has been serving since 2001 as an Observer member of the OECD Committee on Fiscal Affairs.
Since 2011, the Argentine Republic has assumed international commitments regarding actions against money laundering and terrorist financing. Likewise, the Argentine Nation, following the G20 guidelines on fiscal transparency, has undertaken various actions related to multilateral cooperation and, especially, with the Organization for Economic Cooperation and Development (OECD), in the fight against tax evasion. international prosecutor.
In this line of action, the Argentine Republic adhered to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (OECD-EC) on November 3, 2011, within the framework of the eighth meeting of the G-20 in Cannes, France, being deposited the respective instrument of ratification on September 13, 2012, making our country the first state in South America to be a Party to the Convention. This multilateral instrument offers Argentina a solid mechanism to strengthen international cooperation between states in the fight against tax evasion and avoidance.
Consequently, in 2012 Argentina was reviewed by Foro Global, highlighting the report the efforts made to guarantee the existence of a legislative framework and the availability of sufficient resources to obtain and exchange information for tax purposes.
Likewise, the Federal Administration of Public Revenues signed the new “global standard for the automatic exchange of financial account information” (Standard for Automatic Exchange of Financial Account Information in Tax Matters), in order to deepen the fight against tax evasion.
By joining this initiative, our country has the possibility of exchanging tax information using different mechanisms:
- a) The MULTILATERAL CONVENTION ON MUTUAL ADMINISTRATIVE ASSISTANCE FOR TAX PURPOSES of the OECD, with 129 countries;
- b) The AUTOMATIC EXCHANGE OF FINANCIAL INFORMATION AGREEMENT, with 109 countries;
- c) DOUBLE TAXATION AGREEMENTS, with 21 countries, and;
- d) BILATERAL AGREEMENTS FOR THE EXCHANGE OF TAX INFORMATION, with 26 countries.
Finally, since June 2014 Argentina has been an Associate member of the OECD Committee on Fiscal Affairs, the highest category of link that a non-OECD country can acquire with any of its Committees or subsidiary bodies.
This information exchange network, promoted since 2011, is what enhances AFIP’s audit capacity for personal property tax, income tax, and also for extraordinary solidarity contribution.
BEPS
BEPS refers to the erosion of the tax base and the transfer of profits caused by the existence of loopholes or unwanted mechanisms between the different national tax systems that multinational companies (MNEs) can use. In other words, it is a multilateral mechanism to avoid tax elusive tax planning, fundamentally corporate income tax or corporate income tax.
The genesis of the BEPS project is found in action 1, related to the digital economy. The taxation of multinational companies whose business is essentially digital has placed the focus of attention on the corporate income tax system, characterized by the principle of worldwide income taxation in the state of residence.
ACTION 1 is made up of two pillars: PILLAR 1 and PILLAR 2.
2.1. PILAR 1.
The Pillar 1 approach aims for countries to be able to tax income from multinational groups at the head of subsidiaries that have some kind of presence in their jurisdiction (market jurisdiction), without it being a physical presence.
For this, new nexus and income attribution rules must be developed, that is, it requires analyzing the way in which value is created in a transnational operation and then determining how the intervening parties should pay taxes in each jurisdiction.
While originally intended for digital business models, the focus has been extended to understand other consumer-facing businesses. The approach includes the so-called “Automated Digital Services” (ADS) and “Consumer-facing Businesses” (CFB).
PILLAR 1 contains 3 elements or amounts into which a transaction is broken down:
- Amount A implies the attribution of tax authority to the “market jurisdictions” over a portion of the non-routine income obtained globally by a Multinational Group that performs the provision of automated digital services (ADS) or other transactions with consumers ( CFB), whose global gross income exceeds a certain threshold (Euros 750 million). It requires the identification of the entities that obtained the non-routine income so that the jurisdiction in which they reside eliminates double taxation and in turn the determination by the GEMN of which are the market jurisdictions that will participate in the distribution of Amount A .
- Amount B comprises a pre-established fixed profit margin for certain low-risk distribution and marketing activities, which are carried out with physical presence in market jurisdictions. It is expected to prepare a return margin by type of industry: pharmaceutical, consumer products, automotive, information technology and communications.
iii. The adoption of effective and binding mechanisms for the prevention and resolution of controversies, which would be carried out through review and determination panels made up of representatives of the public and private sectors, including the tax administrations.
2.2. Pilar 2
As emerges from the document “Tax Challenges Arising from Digitalisation – Report on Pillar Two Blueprint”, published by the Inclusive Framework OECD / G20, the objective of Pillar 2 of Action 1 of the BEPS Project is to establish a minimum taxation at a global level to avoid residual effects of BEPS maneuvers.
This minimum tax would be applied in the event that one or more jurisdictions where a multinational group operates do not reach a minimum threshold of effective taxation (to be agreed), considering a jurisdiction-by-jurisdiction approach, thus guaranteeing that multinational groups are subject to at least to a minimum taxation for its global operations.
For this, the introduction of the so-called Income Inclusion Rule (Income Inclusion Rule), similar to the US GILTI standard already described.
Lawyer (UBA). Public Accountant (UBA). Tax Law Specialist (Austral). Master in Finance (Universidad Torcuato Di Tella).
