With the implementation of this 15% tax at the global level, a review of the preferential tax regimes in Panama is expected in order to measure their impact on multinational groups.
Tax incentives are used by developing countries as part of their investment attraction policies. These incentives can incorporate tax exemptions, reduced rates, tax credits, investment deductions, among others, through different laws implemented by different government authorities. Tax incentives are a fiscal sacrifice that has an impact on countries' tax revenues, so their design and implementation always go hand in hand with a cost-benefit analysis.
Under this scenario, it is important to analyse the potential effects of the implementation of the Global Minimum Tax, also called "GloBE", by the member countries of the Inclusive Framework of the Base Erosion and Profit Shifting Project (BEPS), among which is the Republic of Panama. For the moment, the European Union, Canada, the United Kingdom, Switzerland, the Bahamas, Singapore, among other countries, are already taking steps to implement the "GloBE" rules.
As from 2024 with the entry into force of the "GloBE" rules in different jurisdictions, the profits of subsidiaries belonging to multinational groups with global income over 750 million euros will be taxed at an effective rate (EIT) of 15%. According to these rules, when the result of the Effective Income Tax Rate in a given jurisdiction is less than 15%, the parent company must pay a Complementary Tax (top-up-tax) for the difference in its jurisdiction.
In this regard, the Organization for Economic Cooperation and Development (OECD) points out that Multinational Groups generally have lower effective corporate tax rates in the countries as a consequence of the application of tax incentives, so it is expected that the effect of the implementation of the "GloBE" on the effectiveness of tax incentive policies will be relevant.
In view of this situation, it is essential that the countries carry out a diagnosis of the impact of these rules on their tax incentive policies, for which it will be necessary to review their tax systems, their tax treaty network, the entities that are part of the multinational groups within the scope of application of the "GloBE", the type of activities carried out and the substance of the entities, the result of the profits in their jurisdiction and the types of incentives used by the multinational groups.
In Panama, the decision making regarding the Global Minimum Tax requires in a first phase an evaluation of the data of the taxpayers subject to the scope of application. For this purpose, it is important to analyze the data of the consolidated income boxes of the multinational groups of the "Transfer Pricing Report" and the Country by Country Report; and the coordination of the authorities of the MEF, MICI and other authorities of special economic zones.
While we are waiting for the country's roadmap for the implementation of Pillar II, it is important that Multinational Groups review their tax structures in order to ensure compliance of their subsidiaries with this tax.