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Government Gives Green Light to Global Minimum Tax of 15% on Large Companies

The Council of Ministers approved on Tuesday the draft bill that transposes the European directive

Spain goes one step further in the reform of the taxation of large companies: the Council of Ministers approved on Tuesday the draft bill that transposes the European directive that forces the largest companies to pay a minimum rate of 15% in taxes. The Government had time until December 31 to carry out the process, that will affect those national and multinational groups with a consolidated income figure equal to or greater than 750 million euros. The measure aims to increase collection and mitigate the diversion of corporate benefits to territories with lower taxation, a phenomenon that hatched from the nineties and that subtracts billions of euros from public coffers every year.

This minimum rate is a kind of tax floor, agreed within the Organization for Economic Cooperation and Development (OECD) between more than 140 countries and jurisdictions and technically known as pillar two. Its objective is to guarantee that a multinational pays at least a minimum amount in corporation tax. To give an example: if a Spanish company operates in a country where corporation taxation is 10%, Spain may require you to pay the difference of five percentage points until it reaches 15%.

“ The objective of this preliminary project is to adapt the international tax agreements reached in global forums and institutions such as the G-20, the OECD or the EU to the Spanish legal framework, to fight against aggressive tax planning by multinationals ”, notes a note published this Tuesday by the Ministry of Finance. The department directed by María Jesús Montero the procedures had already started at the beginning of the year to introduce the new figure in national legislation. After its approval on Tuesday in the Council of Ministers, the text will begin the process of the advisory bodies to be ratified again later by the Government and forwarded to Parliament.

European partners reached an agreement on the minimum rate of companies at the end of last year after several clashes between them and failed attempts, also because all decisions in tax matters require unanimity. Spain, meanwhile, took a solo step and implemented in 2022 a minimum rate of 15% nationwide.

The big difference from international design is that the Spanish figure is applied on the tax base — until October had provided the treasury with some 580 million euros —, which reduces the potential for collection, since it is a smaller magnitude with respect to profits. The new European ceiling, on the other hand, is based on the adjusted accounting result, an amount that is more similar to earnings and is calculated according to the parameters set by the directive in the same way for all countries.

The implementation of a new minimum rate for large companies also was part of the coalition agreement between PSOE and Sumar, in which both parties commit to a fiscal reform. “ This reform will ensure that 15% is reached% taxation cash on the accounting result of large companies in corporation tax in the terms agreed globally and in the EU, instead of on the tax base as it currently happens ”, it indicates the text of the pact. The second vice president, Yolanda Díaz, assured that with this measure some 10,000 million would be raised, a figure that seems optimistic in light of all the analyzes published so far on the scope of the new tribute.

Supplementary tax

The directive allows Member States to apply a “ supplementary tax ” to require large groups located in their territory to pay more taxes if they pay below 15%. This tax has three different facets. Firstly, a national supplementary tax is contemplated: companies established in Spain that are part of a national or multinational group and that pay less than the fixed ceiling must pay the difference. The Treasury ensures that this measure is compatible with the national minimum rate already in force, when applied to different magnitudes.

The complementary tax would also be activated in two other cases: if the parent of a multinational located in Spain receives income from subsidiaries abroad that pay less than 15%. Lastly, a “ closing system ” is contemplated: if some of the multinational companies obtain profits abroad that are taxed below the established threshold, the difference will be assumed by the group’s subsidiaries located in Spain.

The standard is full of technical details and nuances. For example, it contemplates the exclusion of entities such as international and non-profit organizations, public entities or pension funds. “ When this process is concluded and the rule is definitively approved, Spain will have a fairer, more modern tax system aligned with international tax policy ”, concludes the tax note.

Source: El Pais