04/10/21

INTERNATIONAL TAX: Spain pledges to press ahead with Europe on OECD corporate tax deal.

As published on ft.com, Sunday 3 October, 2021.

Spain has vowed that it and other European countries will press ahead with plans to introduce a minimum corporate tax of 15 per cent under a groundbreaking global pact led by the OECD, even if equivalent measures fail in the US.

In an interview with the Financial Times, María Jesús Montero, budget minister, said it was unacceptable that some groups in Spain paid as little as 6 per cent corporate tax while smaller companies paid 19 per cent, adding that “you can’t have this regressive fiscal engineering”.

As one of the first EU countries to introduce a “digital tax” on companies such as Google, Spain has bolstered its status as a trailblazer for tougher EU tax rules. The global compact on a minimum corporate tax is also entering a decisive period, with participating countries meeting on Friday to thrash out details ahead of G20 finance ministers and leaders gathering later this month.

Referring to July’s deal by more than 130 countries, which agreed the principle of a global 15 per cent minimum tax, Montero said: “It is unstoppable . . . Independently of what happens in the [US] Congress — which hopefully will go in the right way — this debate is now settled: Europe cannot pull back from what we have all agreed in the OECD.”

US President Joe Biden is battling to salvage his $3.5tn spending bill — a cornerstone of his legislative programme that contains proposals for a new minimum effective corporate tax of 15 per cent as well as headline tax increases for businesses. Biden lacks the support of two key Senators for the spending legislation.

Another potential sticking point in Spain’s position is that, while any country can unilaterally implement the global minimum tax, for the EU to act as bloc requires unanimity from its 27 members. But Estonia, Hungary, Malta and, most importantly, Ireland have not yet endorsed the agreement.

Still, as most of the multinationals paying low tax rates in Ireland are US companies, if the US Congress approves the legislation Ireland would automatically lose its tax advantage and is expected would then agree, so clearing a big hurdle to a final global agreement.

In Spain, Montero is in the last stages of negotiating the government’s 2022 budget proposals. The radical left Podemos grouping, the junior partner in the Socialist-led coalition, is campaigning for the 15 per cent corporate tax rate to be included in the country’s budget plans.

Montero, a Socialist, said the tax measure would be included in those proposals, which have to be backed by parliament by year-end — or it would follow a report by an expert committee on fiscal reform next February.

But she warned that the international consensus could still be tested by “differences about the small print”, arguing that the figures could be “radically different” depending on whether the 15 per cent is levied on companies’ taxable income or their reported profits, and if some sectors are exempted.

Other areas still to be finalised in the tax deal include the dispute-resolution mechanism and specific exemptions for countries that, while not tax havens, attract companies via various tax incentives, often for manufacturing plant and machinery.

Montero said she was confident Spain’s minority government would win parliament’s backing for the budget, as it did for the first time last year. “It is important that the recovery is fair, and that it reaches all our citizens,” she said.

The budget forecasts that Spain’s fiscal deficit, which is expected to be 8.4 per cent in 2021, will drop to 5 per cent next year and continue to fall to just above 3 per cent by 2024. But critics of the leftwing government are sceptical it will give up on the high spending habits of the pandemic era.