Experts in international taxation participated in the first congress on international taxation in Panama City, in which they agreed that the country has the opportunity to adapt its rules to international regulations such as the application of the so-called Global Minimum Tax in which a 15% rate is applied to multinational companies.
Panama faces a shortfall in its revenue collection target, with tax revenues 7% below forecast. In addition, the country has one of the lowest collection rates in the region, representing only 13% of gross domestic product (GDP), compared to a regional average of over 16%. Against this backdrop, there is an urgent need to find new sources of revenue.
Added to this is the urgent need for resources to cover the shortfall in the pension subsystem of the Social Security Fund (CSS).
All this generates the attention of a possible application of the international regulations of the global minimum tax or also called tax on multinationals.
The international taxation expert Alvaro Villegas, vice president for Latin America of the International Fiscal Association (IFA), recalled that according to estimates of the Organization for Economic Cooperation and Development (OECD) Panama could receive between $209.6 million and $256.2 million if it applies the global minimum tax of 15% to multinational companies operating in the country and which have annual consolidated revenues exceeding $750 million or its equivalent in dollars.
Villegas, who was present this Wednesday, December 4 at the First Congress on International Taxation, convened in Panama City, said that this amount would represent between 24.7% and 30.1% of income tax revenues, applying the minimum tax to multinationals.
José Galíndez, president of the Panamanian chapter of the IFA, added that this case would apply following the “GloBE” rules that establish that multinational groups should be taxed when the tax contribution does not reach the affective rate of 15% at the consolidated level in the country where they operate, in this case Panama.
He detailed how the global minimum tax would be applied in Panama, in the case of multinational groups with various operations in the country.
He explained that if a multinational has in Panama three companies operating under different tax regimes -one as a Multinational Company Headquarters (SEM), another in the Fuel Free Zone and a third under the ordinary regime with a 25% income tax rate-, the total contribution of the group will be assessed.
If when adding the taxes paid by all its operations in the country, the effective rate is 7%, Panama will apply an additional levy of 8% to reach the 15% established by the global minimum tax regulations. This adjustment would be made locally, since Panama is the country where the income is generated.
Natalia Quiñones, vice president of IFA Global, said that countries like Panama should implement the qualified global minimum tax to capture income from multinationals before it is taxed or collected in other countries where these companies also operate.
The tax expert explained that the global minimum tax was designed to ensure that multinationals pay at least 15% of their profits somewhere and thus reduce harmful tax competition and aggressive tax planning.
“The global minimum tax was a laudable objective, but its implementation has been chaotic due to the lack of harmonization and the complexity of the rules,” Quiñones admitted.
He added that there are cases of countries that have introduced rates different from the suggested 15%, such as Colombia, where a 20% global minimum tax is proposed.
Panama does not yet have an official position to adopt this tax. In the current administration of the General Directorate of Revenues and among representatives of the Chamber of Multinational Companies, the subject has been discussed, but there is still no official proposal on how it will be applied or when.
In the meantime, the nearly 200 companies with multinational headquarters and of other regimes that operate in the country, have in their plans to comply with the OECD rules to pay this tax, but there is a risk that some of them will pay in other countries and not in Panama, if the issue continues to be delayed.
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