By Leopoldo Parada / Professor of Tax Law at King’s College London
In 2025, the Uruguayan government decided to implement the Global Minimum Tax (IMG) through a Minimum Complementary Domestic Tax (IMCD). Nobody knows asked, nor was it necessary, but there it is. This is one of the rules of the so-called IMG that allows Uruguay tax a multinational group on income that has not been sufficiently taxed in the country, taking as a reference a minimum effective rate of 15%. While some celebrate it as an act of “fiscal justice,” others look with concern at the future of a tax incentive policy that, for better or worse, has been part of the strategy to attract investment foreigner to the country for several years. And it makes sense: a reform intended to protect tax collection, such as the minimum tax, can end up reducing the effectiveness of the tax benefits with which the State itself has been committed for years to attract investments.
Now, beyond the technical, the general scene that the government presents to us with a minimum tax approved and walking, on the one hand, and the need to continue attracting investments and generating legal certainty, on the other hand, is still curious, since it is very similar to the situation in which a patient is diagnosed with a autoimmune disease.
Think of a person who, after several months of examinations and contradictions, hears his doctor say: “Sir, it is your own body that is attacking you.” The news is disconcerting. After all, what was supposed to protect him becomes the heart of the problem. If we look at the IMG in Uruguay from this perspective, it is exactly the same.
The State offers tax incentives to attract investment, knowing that companies make decisions based on these incentives. That is, it tries to make the economy work well, just as anyone would expect from their own body. However, here it is the same State that decides to introduce a tax that can not only neutralize the same tax incentives it created, but also scare away, at least partially, the investment that it so desires. That is, the State itself is the one who decides to attack itself.
Some may argue using the classic defense theory of the IMG, the one that says “if Uruguay does not charge, someone else will charge.” Under this premise, maintaining certain tax benefits could end up favoring a foreign treasury over the company that invests in the country. That is, the country would sacrifice income without achieving the investor keep the benefit, so it is better to have the IMCD.
The argument is logical, but care must be taken to transform it into a universal truth. In fact, the greater collection derived from the minimum tax will depend, among other factors, on who stays in Uruguay to pay, or seen in another way, how much it matters to the foreign investor pay that “little extra”. If this cost does not alter your decision, the revenue expectation can be sustained. But if it alters it, we will have to grit our teeth or change the strategy.
This becomes particularly important in an international scenario where US-based groups that take advantage of the Side-by-Side regime are protected against the IIR and the UTPR, but not against a domestic minimum tax (QDMTT). For these groups, the premise that “if Uruguay does not charge, someone else will charge” is no longer a sufficient explanation. This is where the autoimmune risk appears, since, if Uruguay maintains the IMCD for these groups, it must justify it by something other than the threat of another country charging.
What if it excludes them, as seems to emerge from reading the Uruguayan legislation? Well, it would be creating a conditional tax that leaves it both outside the QDMTT classification and a tax covered at the level of the regulations of the OECD. That is to say, Uruguay You are left with an additional corporate tax that hinders more than adds, even when the autoimmune attack is reduced with its conditionality.
Francois Mori/AP
Should Uruguay then completely deactivate its “immune system”, including its IMCD? Not necessarily. Let’s be honest, the State has the right to protect its collection, if it so wishes. However, it is important to do so by distinguishing very well between when you are protecting the collection and when you are modifying, by your own decision, the investment conditions. That is to say, the important question is, therefore, how to maintain this balance.
Although there are no magic recipes, I believe that a coherent fiscal policy strategy would require at least two fundamental elements right now.
The first would be to jointly examine the need to attract investmenton the one hand, and the role of default collector that he assumes Uruguay with the IMG, on the other. That is, asking if they are both compatible and, above all, if Uruguay can continue competing for investment in a global economy, especially now that it has decided to tax more. If the answer is positive, it is worth adapting. But if it is negative, there must be a reevaluation. And this is precisely where the second fundamental element of a coherent fiscal policy lies: the ability to self-correct.
This is very important in a changing international scenario and translates into the ability to recognize that, no matter how much one wants to follow the guidelines set by the OECD in projects like the global minimum tax or a universal idea of tax justice, if the conditions that make said project possible change, the strategy must do so too. In that case, it would not be a political failure, but rather a change of priorities in which national interests would come to the fore. Just as a medical diagnosis and its consequent treatment are never fixed in time.
We’ll see how a country that still needs the foreign investment and is still immersed in a global economy where competition has not disappeared simply because a so-called IMG exists today.
Free zones and competitiveness in times of the Global Tax
By Carlos Loaiza Keel / Tax and Corporate lawyer
International taxation is experiencing one of its most profound transformations in decades. Driven by the Organization for Economic Cooperation and Development (OECD) and the G20, the Global Minimum Tax It seeks to reduce tax competition between countries and ensure that large multinational groups pay tax, at least, an effective rate of 15%. However, as the new rules begin to be applied, an uncomfortable question arises for small, open economies like Uruguay’s: can these new regulations make the instruments used to attract investment lose effectiveness?
In this new column for #TaxConsultant, Leopoldo Paradaprofessor of Tax Law at King’s College of London, examines with his usual audacity the effects that, in his opinion, the recent introduction of the Minimum Complementary Domestic Tax on the tax competitiveness of the Uruguay.
The reflection is especially pertinent, since free zones continue to play a key role in receiving investments for the Uruguay; This is demonstrated by the recent announcement by the Uruguayan government of a private investment of billions of dollars, which will take advantage of precisely this investment regime to which, otherwise, these tax changes do not seem to have posed any obstacles.
Beyond its technical implications, which may or may not be shared, Leopoldo’s article invites us to think about a fundamental question, which will be the focus of the conference.Free Zones and competitiveness in the era of the Global Minimum Tax”, next Tuesday, November 3 at 6:30 p.m. at the University of Montevideo. A timely academic debate on a crucial issue for the current and future development of our country.
Source: www.elpais.com.uy
