Tuesday, October 26

Corporation Tax: 15%, but of what?

Pandora’s papers hit us again with an obscene reality, showing the use and abuse of tax havens by the richest and most powerful, individuals and their corporate societies. It reveals a powerful industry that breaks the rules of the fair game, which threatens to destabilize democratic foundations and through whose loopholes continue to lose vast resources, vital for any country. And it is also through these black holes that hospitals, education, the fight against climate change or the financing of all public policies that support a welfare society are lost.

It is in this context that the current government coalition is in frantic meetings to close an agreement with a common proposal for the General State Budget for 2022. There is probably no moment of greater political relevance than the discussion on Budgets: how much and how the State is going to spend its resources and how it is going to collect taxes. But when the resources that are lost are of such magnitude, it is a rigged starting point. The use of tax havens conditions the capacity of the State and limits its scope. For this reason, the discussion around the PGE cannot be separated from measures to combat tax evasion and cannot be separated from the reforms that must urgently be incorporated.

And to a large extent, to close the collection inefficiency of the Corporation Tax and close the holes of tax avoidance, the discussion on a minimum of 15% in corporate taxation takes on special relevance. And as has been seen in recent weeks, this has been one of the issues that has raised the most discomfort within the coalition.

But what is the problem? Why does this proposal generate so much suspicion? As is often the case in politics, it is just as important to know what is being talked about, as it is to know what is left out of the discussion. And in this case, the elephant in the room, both in the global discussions and in the discussions of these budgets, is to finish explaining what that 15% applies to. 15% of nothing will remain nothing. Therefore, the first thing is to avoid that the base on which the tax is calculated is so narrow that it almost does not report anything. Consequently, it is necessary to analyze and review all those deductions and exemptions that reduce the tax bill, especially for large companies. In 2018, only in tax credits, Spanish companies had up to 66,142 million euros to reduce their tax bill, more than two and a half times the amount collected by the Corporation Tax that year.

In addition to the in-depth review of the design of the tax, which would allow greater horizontal equity between companies to be achieved, the other fundamental element to finish knowing what we apply this rate to is the one referred to the financial and tax engineering of large companies. Pandora’s papers from last Sunday told us about companies filed by well-known politicians, artists and people from the world of sports to stop paying taxes. In the case of large companies, we come across a similar system whose objective is the same: to reduce their tax bill by artificially transferring their profits to tax havens. Thus, the latest data available, referring to 2017, show that the profit before taxes per worker of the Spanish subsidiaries in the Cayman Islands is more than 120 million dollars. In Mexico, with a population that is almost 2,000 times that of the Cayman Islands, it does not reach $ 43,000.

There are many voices that hide behind the fragility of the economic recovery so as not to move towards a greater tax burden on companies. But what we are basically talking about is making companies pay what they have to, helping to build a fairer and more progressive tax system. Once again, it is worth remembering that without profits, companies do not have to pay taxes.

Applying a minimum of 15% in Corporation Tax would curb two of the main problems that the Spanish tax system suffers from. On the one hand, it would be possible to recover progressivity in the tax design and that most of the sustainability of the effort does not fall disproportionately on the group of families and workers. In 2020, 88% of the total collected by the Tax Agency continued to fall on families (essentially work and consumption) compared to 8% generated through corporation tax. On the other hand, it would limit the ability of large companies to reduce their tax bill with deductions and exemptions that small and medium-sized companies do not have access to. The 2018 data reflects how the 216 companies that invoice more than 1,000 million euros in Spain have an effective rate of 5.47%. Despite accounting for 42% of business profit, its contribution barely reaches 24% of total corporate tax collection. In addition, this proposal fits like a glove to the agreement promoted by the G20 and the OECD, which is expected to be sealed at the end of this month, and by which more than 100 countries around the world agree to establish a global minimum rate for this tax that right now stands at the same 15%.

It has never made more sense to step forward and defend measures that will represent vital steps in the fight against tax havens and against inequality.


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