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The implementation of a global minimum tax poses a significant challenge for Brazil’s Ministry of Finance. This is an exceptionally complex task, both practically and operationally, and, as with any globally adopted measure, it may not be beneficial for all countries.
Over the past two decades, the international paradigm known as the “Race to the Bottom” has become more widespread, with countries increasingly lowering taxes and reducing fiscal obligations to attract foreign investment.
This leads to the introduction of Pillar 2 of the OECD’s BEPS project, known as the Global Anti-Base Erosion Rules (GloBE). These rules establish a minimum 15% income tax rate on the profits of multinational companies (“top-up tax”), regardless of where their operations are located, and was driven by several catalytic factors.
Two of these measures, the “Global Intangible Low-Taxed Income” (GILTI) and the “Corporate Alternative Minimum Tax” (CAMT), originate from the United States. GILTI (2017) imposes a minimum 21% tax on income derived from intangible assets (such as patents, copyrights, etc.) held abroad if the effective tax rate is below 13,12%. On the other hand, CAMT sets a minimum 15% tax rate on income reported in the consolidated financial statements of multinational companies with annual income exceeding $1 billion.
The implementation of the global minimum tax is structured around two sub-pillars. The “Income Inclusion Rule” (IIR) requires the untaxed or under-taxed income of a subsidiary to be included in the tax base of the controlling company’s (parent company) country of residence, until the minimum 15% tax rate is achieved, unless a domestic minimum complementary tax (“Qualified Domestic Minimum Top-up Tax – QDMTT”) is in place.
The “Undertaxed Payments Rule” (UTPR), in turn, aims to disallow the deductibility of expenses and the adjustment of certain amounts in the tax base of subsidiaries located in low-tax jurisdictions until the minimum 15% tax rate is met for any entity within the same group.
The main challenge lies in reconciling international accounting standards with the calculation of the proposed Effective Tax Rate (ETR) for the GloBE. Pillar 2 is based on financial statements prepared under IFRS, and although most countries worldwide follow this standard, its use and scope are not uniform across all jurisdictions. However, major countries like the United States, India, Japan, and Australia do not adopt IFRS.
So, how can global ETRs for subsidiary countries be reconciled if the methods for determining and consolidating financial results differ?
Determining the ETR, “Top-up Tax”, and excess profits involves applying multiple formulas, all of which stem from adjustments within the IFRS standard itself. The implementation of the “Top-up Tax” presents an additional challenge: ensuring its compatibility with the constitutional provisions and domestic tax incentives of various countries.
How can countries be persuaded to relinquish their sovereignty, disregarding tax benefits that are even constitutionally protected? The adoption of the GloBE is likely to occur in a mitigated form, if it happens at all.
These questions highlight that implementing a global minimum tax is an extremely complex practical and operational challenge for the countries involved, and Brazil has yet to reach even a minimal consensus for its implementation.
