The G7 proposal to introduce a global minimum tax on multinational companies to prevent foreign profits would hit both American and foreign multinational companies operating on the island, warns Carlos Rodríguez, president of the Puerto Rico Manufacturing Association (PRMA).
In their first face-to-face meeting in two years, the countries of the Group of Seven – the United States, Canada, Great Britain, Japan, France, Italy and Germany – agreed, among other things, that a minimum corporate tax rate of 15 percent is required to prevent multinational corporations from doing so to prevent tax evasion through the use of tax havens.
This move, championed by President Joe Biden’s administration, would “end the race to the bottom in corporate taxation and ensure fairness for the middle class and working people in the US and around the world,” said Treasury Secretary Janet Yellen.
If passed in the US, it could have repercussions in Puerto Rico
Although this resolution would have to be examined later this year at the Summit of the Group of 20 and action would be required by the US Congress, its adoption worldwide would have a dramatic effect on production. “Regardless of whether or not they reach an agreement, if it is roughly similar to that number (15 percent), it definitely affects any country that has taxes as part of its manufacturing benefits,” Rodríguez said.
In addition, other critics have warned that the proposal would result in higher costs for consumers, many of whom are already economically affected by the COVID-19 pandemic.
Likewise, the Americans for Tax Reform groups and the World Taxpayers Association signed a joint public letter stating that this agreement would “severely damage valuable tax competition between countries and cause undue damage to businesses, workers and economies around the world. A global minimum tax rate would greatly reduce the power of tax competition. This competition between nations provides critical scrutiny of the power of governments and is critical to ensuring an efficient and reasonable level of taxation. “
Meanwhile, Biden proposed a national tax rate of 21 percent on foreign income, up to 13.13 percent higher than the rate enacted under the Trump administration. This rate, which exceeds the proposed global minimum, would require US jurisdictions to increase their competitiveness in order to continue the reshoring initiative that has been widely debated since the last administration.
Greater competitiveness required
Rodríguez confirmed, however, THE WEEKLY JOURNAL that Puerto Rico cannot rely solely on tax breaks and incentives provided under laws like Law 60-2019, which consolidated Laws 20 and 22 of 2012, to attract more production.
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“In the case of Puerto Rico, I think this is another signal to the government – this is not the first time – that it needs to focus on establishing, rather than competitive, economic development strategies pure taxes. ”he stated.
Specifically, he argued that the island needs to strengthen the many elements that govern its business operations, including energy infrastructure and costs, licensing procedures, broadband networks, telecommunications infrastructure, a trained workforce with an emphasis on STEM areas, and less red tape.
“We still have a long way to go. Taxes, even if kept low, are just one of the elements a business considers when locating in a country. You have the element of taxes and you have the element of infrastructure and the element of quality from employers, with whom we have no problems. There are a myriad of elements involved in getting a business established in one place, and we in Puerto Rico are still lacking anything to do with infrastructure and government agility, ”Rodríguez said.
As different countries and jurisdictions compete for their share of the profits, the PRMA President underlined the need for immediate and careful action.
“At some point we have to start and when the bus has already left us, we have to go through some time and now we have federal funding. It is therefore important that the government responds with an agile and rapid plan in all areas related to developing the country’s competitiveness, ”he affirmed.
– The Associated Press contributed to this story.