The study prepared by the team of Open Spaces (EA) quantifies and analyzes the effect of Global Minimum Tax of 15% and the opportunities and risks that it represents for Puerto Rico, whether or not to adopt legislation that allows us to capture that money and invest it in such a way that our industrial base maintains its competitiveness and some 100,000 jobs are protected.
In essence the EA study:
- quantifies IMG's income potential at about $3,800 billion annually,
- raises the need to take action before January 2025 to prevent that money (about $3,500 billion) from being claimed/captured by other jurisdictions,
- and among other things, it proposes the creation of a commission of local and international experts to help define how these new income will be invested with the objective of sustaining the current and future industrial base of PR in compliance with the new international standard.
Over 140 jurisdictions have implemented the IMG, which has become the international standard. The global minimum tax establishes that corporations with annual income greater than 750 million euros must pay a minimum rate of 15%.
Starting in 2025, this minimum tax, also known as Pillar II, also affects subsidiaries in Puerto Rico of corporations whose parent companies have other subsidiaries in countries that have already signed the agreement promoted by the OECD and the G-20.
Currently, in the aggregate, multinationals and foreign corporations are taxed at an effective tax rate of 2.43% in Puerto Rico.
On the other hand, the Undertaxed Profits rule (UTPR) allows that, starting in January 2025, any country that is a signatory to the international agreement can claim from another jurisdiction that has not adopted the Global Minimum Tax, the difference in the rate equivalent to 15 %. Difference that in the case of Puerto Rico is equivalent to 12.57%.
It is for this reason that it is imperative to adopt legislation that allows Puerto Rico to capture that money that would otherwise go to the coffers of other countries. We are talking about a significant amount. That's more than $3,500 billion that others could claim.
What we have before us is not whether or not the tax rate for these corporations is increased here, since they will have to pay 15% here or abroad. So, the issue to be defined is who will raise that money? If we do nothing, the country of origin or the country of a subsidiary will collect it, but if we want it to stay in Puerto Rico, we have to take action.
The publication of the public policy report of Espacios Abiertos titled, The Global Minimum Tax and its effects in Puerto Rico: a window of opportunity, has the objective of: making transparent information distributed in various sources with limited access; provide knowledge and data; and promote an open discussion that allows civil society in Puerto Rico to take advantage of the opportunities presented by the IMG, mitigate the risks and guarantee a sustainable long-term fiscal policy.
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Access the Report here in its Spanish version. Access the Executive Summary, here.
For the English version of the report, access this link. Access here the Executive Summary.