This is a global taxation coordinated by the OECD countries but will affect 140 nations, including almost all Latin American countries. The novelty is that if a firm does not pay taxes in its country of origin, it will have to pay them in any of the nations where it operates. EY experts warn about the consequences of this regulation, which is unstoppable.

If you haven't heard of the BEPS acronym, it would be time to do so.

It means Base Erosion and Profit Shifting, in Spanish 'erosion of the tax base and profit shifting' and is the term that designates the tax planning strategies used by multinational companies to take advantage of the discrepancies, gaps and inconsistencies of national tax systems. and transfer their benefits to countries with little or no taxation.

Basically, it is the old practice of having the headquarters in a country that allows reducing the amount and payment of corporate tax.

The OECD and the IMF had been trying to modify the situation for years, talking about the need to establish a new global tax and they finally defined it as a pandemic. And as the official OECD website indicates in this regard, "it addresses the challenges derived from the digitalization and globalization of the economy."

As of October 2021, 137 countries and jurisdictions that make up the OECD-G20 BEPS Inclusive Framework endorsed this agreement, officially called BEPS2.

This is a global minimum tax of 15% that aspires, precisely, to impact the entire globe, and that will apply to multinational companies (MNCs) whose income exceeds US$ 810 million, with which it is expected to generate additional revenue. of US$ 150,000 million annually.

"In practice, this comes into effect on January 1, 2024 and the truth is that not all countries will reach that date to have it implemented, but it will still have an impact for any company in the world that is international," he says. to AmericaEconomía José Bustos, expert in international taxation at EY .

And although the OECD has taken the lead, all Latin American countries are included in that commitment.

"The question is whether they will be able to implement it in the proposed time," says Bustos.

Despite the lack of knowledge among a large part of the population, and the possible confusion that its application may produce in just seven more months, the expert does not believe that its entry into force will be delayed.

"This debate has already occurred and, in fact, it lasted a year, because this new BEPS2 tax was going to take effect from 2023, therefore it has already suffered a year of delay or adaptation. Therefore, it is very difficult for there to now be another delay, because there are already many countries that already have definitive legislation and are going to begin to apply it," Bustos emphasizes.

The way this taxation is proposed, if a company is not paying taxes in its country of origin, it can be charged that tax in any other country where it has operations. Regarding this, doubts have arisen about the convenience of collecting it in any jurisdiction.

"What you have to understand is that it is an implementation that must be done country by country, following the terms set out by the OECD. There are other countries, like Colombia, that have made other implementation decisions and that already have minimum taxes. Chile ", like all other countries, signed this global commitment to implement this tax at some point, and even if any country or conglomerate of countries that does implement it does not do so, it could impact Chilean companies or tax collection in Chile," he says. Javiera Contreras, leading tax partner at EY in Chile.

UNFAIR MODEL?

Broadly speaking, the system will work like this: if a Chilean firm is based in Belgium and is not charged tax in Chile, it can be charged in Belgium. But if Belgium did not want or could not collect said tax, if this Chilean firm also has a regional office in Spain, for example, that country can collect the tax.

It would then be a tax that can be collected in any of the countries that have adhered to this system, also called two pillars .

"What they have done is a series of rules to see which country can collect and who has priority. So, if you are a country that does not implement the rule, what will happen is that you will never be able to collect anything and another country, Depending on these rules, it will be collected and it may be a country completely foreign to the place where the income was generated," details the Spanish lawyer.

In short, it will be a tax different from previous taxes, where there will be equitable treatment of the company, regardless of the jurisdiction where it is located. And it is not certain that those taxes will go to the country that needs them most or where they should belong.

"[The tax] aims to generate equal treatment in all countries, initially thinking about which nations of the
tax havens did not take advantage of the fact that the companies located there paid few taxes. That is the initial idea: to try to avoid harmful tax competition (...) that no country competes with others in terms of taxes and for that it is established that everyone has to pay at least 15%," he explains.

Incredibly, this is an idea that arose in the United States, in the midst of the Trump administration - a president who implemented an important local tax reduction, supposedly aimed at favoring the middle class - where the concept of minimum taxation was introduced. But it was the OECD that considered it was time to take this step at a global level.

"It is, of course, strange to what we had known before [since] here you are going to give collection rights to a country where the income has not been generated, and that is absolutely new and, in fact, generates some problems of
approaches, and [you can even ask if] that is constitutional," says Bustos, who sees it as innovative as it is dangerous.

"A thing of this significance and complexity is certainly new, but it also has an intrinsic danger of implementation by countries in any way they want, because it is difficult to interpret," says the expert.

IMPLEMENTATION COSTS

One of the doubts that this taxation raises is how much it will cost to implement it, both for hiring new professionals to prepare it within the firms, and for personnel for its inspection.

Such is the complexity of the rule, that it is roughly estimated that its implementation will cost 80% of what it collects.

"We are seeing that, in practice, the standard is so complex and requires so much effort from companies to comply with it that, in many cases, (...) the machinery for providing information has a cost that exceeds the cost of the potential collection that will be behind: for man hours, of course, for setting up the system to be able to make the tax returns that the information will require, that is already an immediate cost, because companies have to change their systems and hire people to that they understand this new taxation (...) and then, in the future, obviously there will be more controversy and more resources will be needed to address it," says Bustos.

And although Artificial Intelligence will be of great help - in a profession such as accounting, which is expected to be widely impacted by AI - the harsh reality is that part of the calculation of that 80% was made based on the high costs of this new technology.

"Once you implement it, it is true that there are a lot of savings, because it is a machine that does it, but the initial cost of implementing this technology is very high," says the Spanish expert.

At the local level the story is even more disturbing, because in the case of Chile, the host country of the EY meeting, this tax is not yet an issue in the spotlight.

"From what we have seen, it is not on the conversation agenda: it was not in the last (tax) reform proposal, nowhere was there talk of the global minimum tax or how the incentives that we can incorporate into the design of our policy The tax authorities are responsible for whether or not they are included in the calculation of the global minimum tax base. So, this means that any tax agreement that is to be achieved should necessarily include this discussion as one of its pillars," highlights Javiera Contreras.

Especially considering that Chile has a relevant foreign investment, as well as national companies that invest in other countries and that will be affected by the implementation of BEPS2.

"[The issue is] how are we going to ensure that we protect our fiscal policy and keep the piece of the pie that corresponds to us, because we have to try to think about this like this: here is a global collection pie and if I don't take it , someone else can take it (...) That is why it is so relevant that even though we do not have a clear implementation date for Chile, as soon as the other countries start to move you have to start moving, because this is like a game of dominoes," ventures the leading tax partner at EY in Chile.