tributación internacional

New paradigms of international taxation

In Focus – International Taxation

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With this first installment, we begin an informative section on the main advances in international taxation, whose trends may mark future tax innovations in our country.

Undoubtedly, the greatest focus of attention in international taxation in recent times responds to the frenetic work of the G20/OECD initiated in 2015 with the BEPS actions, many of which were adopted by our country in the reform in force as of 2018. However, that progress has quickly proven to be insufficient to capture the new world of business digitization.

The traditional taxation parameters, still in force, are based on separate company concepts; on worldwide income taxation; and on physical presence through permanent establishment, concepts that have proven to be insufficient to capture the phenomenon of the digital economy.

The territorial principle is no longer suitable for digital commerce due to the revolutionary conversion of physical goods into digital goods, the disappearance of intermediaries and automation.

Digital businesses operate without any physical presence in the market and with little human participation, as is the case of emblematic platforms, it is a new business model in which computer algorithms, the link with consumers through the web and apps, gain main value, to the point that a new type of intangible is born: the ability to interact with users and their loyalty. Data collection and profiling becomes the most valuable asset for online advertising purposes.

Digital services basically comprise online advertising services, user data provision, online search engines, online intermediation platforms, social networking platforms, digital content services, online games, cloud computing services or standardized e-learning services.

The phenomenon of automated digital commerce has been captured for taxation purposes by many countries through different modes of taxation, the most widely adopted being VAT on digital services (as implemented in Argentina) but also through the adoption of taxes on B2B invoicing (VAT on digital services).equalization tax) and income withholdings on payments to foreign beneficiaries, the latter solution adopted in Latin America by Uruguay, Mexico, Peru and Paraguay.

There was a need for a consensual solution to income taxation that would avoid double taxation. In this regard, in October 2021, 137 member countries of the Inclusive Framework subscribed to the tax principles and schemes developed by the G20 and the OECD in the so-called Pillars One and Two, marking a disruptive change in the principles of international taxation.

PiIar One entails a transcendental reform in international taxation because through it, the jurisdiction of residence is no longer considered as the axis of income taxation, but rather the jurisdiction of the market. This is achieved through the adoption of new jurisdictional nexus rules for the attribution of the taxable base given by “Amount A”, when dealing with automated activities or with high digital influence. The jurisdictional distribution of benefits will be made using a formula based on the size of sales in each country. It also provides for simplified compliance for traditional routine marketing and distribution activities (“B Amount”).

Pillar Two determines the application of a minimum global tax of 15% to counter international tax competition. It does so through a coordinated system( GloBERules ) for the application of ato-up tax on the profits of multinational companies, allocable to jurisdictions where the effective tax rate is lower than 15%. This is achieved through two figures: the IIR, which must be paid from the last controlling entity of the group in descending order; and its complement, the UTPR, which includes the restriction on the deductibility of certain expenses in favor of group companies, when the complementary tax could not have been fully satisfied through the IIR.

Pillar two

You may also be interested in – Pillar Two What is it and how does it work?

The application of the new international taxation paradigms will be implemented gradually, starting with the largest multinational entities (MNEs).

Pillar One will cover, in a first stage, only multinational groups with a turnover of more than €20 billion and net profitability of more than 10%, a situation that would include approximately 122 groups. The second stage, after 7 years of implementation and conditional on its success, will be extended to MNEs with revenues in excess of €10 billion.

Pillar Two will not be mandatory, but will be uniformly applied, through the adoption of its rules by the countries that decide to adopt it, aimed at MNEs with annual revenues of more than €750 million.

Adherence to Pillar Two and consequent global minimum taxation of 15% implies a commitment by countries to eliminate taxes on digital services that they may have adopted or, as the case may be, not to impose them in the future, as a harmonious international solution is sought. It is worth noting that, in parallel to the reforms proposed by the G20/ and the OECD, the United Nations has introduced amendments to its Model Tax Convention between developed and developing countries, the 2021 version of which incorporates an article that assigns taxing power to the countries in which the users of automated digital services are located (art. 12b).

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The documents issued set out a very demanding timetable, but it is doubtful that they will be implemented without delay, as they require the adoption of internal regulations by the countries. The Inclusive Framework has just generated a new schedule for the application of Amount A of Pillar One, extending its entry into force to 2024, while the drafting of the Multilateral Agreement is still pending (see Progress Report on Amount A of Pillar One). Meanwhile, the formal forecast regarding the application of the minimum tax contemplated in Pillar Two for the year 2023, which we believe is very difficult to achieve, is maintained.

In subsequent issues we will report very briefly on the distinctive features of each of the two Pillars and the main developments in international taxation.


For more information contact:
Cecilia Goldemberg

Partner

cecilia.goldemberg@ar.Andersen.com

Julieta Firpo

Transfer Pricing Director

julieta.firpo@ar.Andersen.com

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