Author: Andreu Bové. Partner of Bové Montero y Asociados
In recent years, the OECD has been working on the necessary configuration of a scheme defined by the fair distribution of profits and taxing rights among countries. In this context, and under the BEPS (Base Erosion and Profit Shifting) project, the organisation has committed itself to tackle multinationals that erode their tax bases and shift their profits to jurisdictions or territories with low or zero taxation.
In October 2021, over 136 countries and jurisdictions joined the OECD’s new plan (i.e. Pillars 1 and 2) to reform international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate.
Under Pillar 1, the OECD wishes to ensure a fairer distribution of profits and taxing rights among countries with respect to large multinationals (i.e. those with an annual global turnover above 20 billion euros and a profitability above 10%). The profits of these groups shall be distributed among jurisdictions following a new nexus rule. In particular, certain taxing rights over multinationals will be re-allocated from their home countries to the markets where they do business and earn profits, regardless of whether or not they have a physical presence there.
Pillar 2 seeks to set a global minimum corporate income tax rate of 15% for multinationals with a turnover above 750 million euros that countries can use to protect their tax bases. The intention is to establish a floor on competition over corporate income tax in each jurisdiction.
As far as Spain is concerned, the Spanish government has recently published its draft of the 2022 General State Budget Bill. Among other measures, this bill establishes a minimum taxation under the corporate income tax of 15% (or 18% for credit institutions).
This minimum effective tax rate will be applicable to entities with a net turnover of at least 20 million euros or entities taxed under the special consolidation regime, regardless of their turnover.
It should be noted at this point that the minimum taxation is not assessed on the accounting profit, but rather on the final tax liability (i.e. the effective rate rate). Under this new rule, the assessment shall take into account tax adjustments, capitalisation and equalisation reserves, tax losses, allowances and deductions for domestic and international double taxation. The taxable income generated under the special Canary Islands’ ZEC regime as well as the Canary Islands’ deductions may also be deducted. If after these adjustments and deductions, the final tax liability is still above 15%, the company can deduct other tax credits such as R&D, technological innovation, film productions and audiovisual series or job creation (up to the aforementioned percentage). We do not believe that the cashback of certain tax credits will be affected by this new measure, but we should wait to see how this law is finally implemented.
In a nutshell, in Spain the new minimum taxation will basically affect entities that benefit from the application of the R&D, technological innovation, film productions and audiovisual series or job creation tax credits, since from 2022 they will be limited by this new measure.
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