Ex-Treasury secretary urges global minimum tax adoption

Former Puerto Rico Treasury Secretary Teresita Fuentes

Former Treasury Secretary Teresita Fuentes urged the island government Monday to approve rules related to the global minimum tax to avoid losing competitiveness.

The Organization for Economic Cooperation and Development (OECD), which comprises 38 countries in North and South America, Europe and Asia is pushing for the tax.

The global minimum tax is an OECD initiative to address the tax challenges arising from the digitalization and globalization of the economy.

“The purpose of the global minimum tax is to prevent the erosion of the tax base and the shifting of benefits to other jurisdictions that impose lower tax rates, so that multinational companies pay at least a minimum tax in each jurisdiction where they carry out operations,” Fuentes stated in OPAL, a legislative publication. “Two pillars achieve the purpose of a minimum tax. The first pillar determines where operations are taxed according to nexus rules. Pillar II determines a minimum tax rate using various methodologies.”

More than 135 countries have joined the OECD initiative and are in various stages of adopting the second pillar through legislation in their jurisdictions.

Puerto Rico has historically depended on its incentive laws to attract foreign investment. Manufacturing represents 45% of the gross domestic product.

“The OECD rules will significantly affect the competitiveness of this sector in Puerto Rico if they are not adopted locally,” Fuentes said. “As a territory, Puerto Rico’s adoption of the OECD rules depends on the approval of the United States, which has not yet stated whether it will apply them. Not adopting the Pillar II rules could cause the difference between the 15% global minimum tax and the 4% currently paid by exempt companies in Puerto Rico to be paid to other foreign jurisdictions, where manufacturing companies operating in Puerto Rico also operate.”

“This situation, together with energy costs and the complexity of the logistics of operating in Puerto Rico, may cause the island to lose its attractiveness as a jurisdiction for manufacturing,” she added.

_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}