Policy Brief – Global Minimum Tax and its Potential Effects in Puerto Rico: A Window of Opportunity

The Policy Report prepared and published by Espacios Abiertos’ (EA) team quantifies and analyzes the effect of the Global Minimum Tax of 15% and the opportunities and risks that represent for Puerto Rico, whether or not to adopt legislation, which would allow PR to capture said monies and invest them in a such a way that our industrial base maintains its competitiveness and some 100,000 jobs are preserved.

In essence the EA study:

• quantifies GMT’s income potential at around $3.8 billion annually,
• raises the need to take action before January 2025 to prevent that money (about $3.5 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 to invest this income  with the objective of sustaining the current -and future- industrial base of PR in accordance with the new international standard.

Over 140 jurisdictions have implemented the GMT, which has rapidly turned into an international standard.   The global minimum tax establishes a minimum tax rate of 15% for corporations with an annual income greater than 750 million euros.

Starting in 2025, this minimum tax, also known as Pillar II, will also impact 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 in Puerto Rico are taxed at an effective tax rate of 2.43%.

On the other hand, the Undertaxed Profits Rule (UTPR) allows that, as of 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.  The amount is significant. The policy report indicates that more than $3.5 billion are in play for Puerto Rico if no action is taken, since said amount could be claimed by others jurisdictions.

This is not a matter of a tax increase that Puerto Rico will be imposing on these corporations, because they will have to pay the GMT of 15% here or abroad.  So, the issue to be defined is who will capture that money? If we do nothing, the country of origin or the country of some subsidiary/affiliate will collect it.  In order for that money to stay in Puerto Rico, the local government must take action.

Espacios Abiertos’ public policy report titled, Global Minimum Tax and its Potential Effects in Puerto Rico: A Window of Opportunity, has the objective of: making transparent information from various specialized sources for which the general public has limited access; provide access to knowledge and data; and promote an open discussion that allows civil society in Puerto Rico to take advantage of the opportunities presented by the GMT, mitigate the risks and guarantee a sustainable long-term fiscal policy.