The minimum 15% Corporate income tax in Spain

A major reform of the international tax system finalised on Oct. 08 at the OECD to ensure that Multinational Enterprises (MNEs) pay a fair share of tax whenever they operate and generate profits and that they will be subject to a minimum 15% tax rate from 2023.

Leaders attending the G20 summit in Rome endorsed on Oct. 29th this global minimum tax aimed at stopping big business from hiding profits in tax havens.
The draft of Spanish Budget Law for fiscal year 2022 already plans to introduce a minimum 15% Corporate income tax rate for qualified taxpayers.

✔ By way of a reminder, it should be pointed out that 136 jurisdictions joined the Statement of the Two Pillar Solutions to address the Tax Challenges arising from the Digitalisation of the Economy.

✔ In terms of the OECD:

• Pillar One aims at ensuring a fairer distribution of profits and taxing rights among countries with respect to the largest and most profitable multinational enterprises, (broadly, those with global sales above EUR 20 billion and profitability above 10%). It will re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.
• Pillar Two introduces a global minimum corporate tax rate set at 15%. The new minimum tax rate will apply to companies with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually.

✔ A convention already under development will be the vehicle for implementation of the newly agreed taxing right under Pillar One, as well as for the removal of provisions in relation to existing Digital Service Taxes as unilateral measures. The OECD will develop model rules for bringing Pillar Two into domestic legislation during 2022, to be effective in 2023.

✔ In the case of Spain, this minimum 15% Corporate income tax rate on the taxable profits is already planned in the Draft Budget Law for fiscal years starting in 2022. It will apply to enterprises with a net turnover equal to or exceeding 20 million euro or to entities having elected for the tax consolidation scheme irrespective of their turnover. For newly created entities benefiting from the reduced 15% rate, this minimum will decrease to 10%. This will imply that, as a result of the application of tax credits, the minimum rate will not be lower than this minimum threshold.

✔ In view of the above thresholds and timings, Spain is ahead of time in applying these severe measures on Spanish enterprises, without taking into account an increased size or their level of profits.

The international context of the minimum Corporate tax rate

On Oct. 08, 2021, a historic agreement was reached by the international community, with 136 participating countries and jurisdictions representing more than 90% of global GDP.

As a result, the Statement of the Two Pillar solution to address the tax challenges arising from the Digitalization of the Economy was approved.

On Dec. 20, 2021, the OECD published detailed rules to assist in the implementation of what constitutes a historical reform of the international tax system.

On Dec. 22, 2021, the European Commission published its Directive proposal to implement, within the EU, a minimum global level of taxation for multinational groups, the entering into force of which is foreseen for Jan. 01, 2023.

The solution is based on two pillars:

✔ Pillar One:

• i. Pillar One aims to ensure a fairer distribution of profits and taxing rights among countries with respect to the largest and most profitable multinational enterprises.
• ii. It will re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.
• iii. Specifically, multinational enterprises with global sales above EUR 20 billion and profitability above 10%, that can be considered as the winners of globalisation, will be covered by the new rules, with 25% of profit above the 10% threshold to be reallocated to market jurisdictions.

✔ Pillar Two:

• i. Pillar Two introduces a global minimum corporate tax rate set at 15%.
• ii. The new minimum tax rate will apply to companies with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually.

✔ On Dec. 20, 2021, the OECD published detailed rules to assist in the implementation of this historic reform to the international tax system, which will ensure that Multinational Enterprises are subject to a minimum corporate tax rate of 15% as of 2023, known as the Global Anti – Base Erosion Rules (GloBE).

✔ Such rules create a top-up tax that will tax profits obtained in any jurisdiction whenever the effective tax rate, calculated on a jurisdictional basis, is below the minimum rate of 15%.

✔ In a not-so-distant horizon, we should see the practical implications deriving from the entering into force of these new rules.