The challenge of corporate taxation and the idea of ​​Podemos


In Spain, there is only one tax which, without being directly linked to real estate activity, collects much less than in 2007: corporation tax. We are faced with a tax in permanent crisis. Moreover, and this is something that is often forgotten, corporation tax is the tax that most conditions business investment. Perhaps that is why the “tax reform” proposal that United We Can presented to the plenary session of Congress last Tuesday focuses much of its content on this tax.

The Minister of Finance, Mary Jesus Montero, stressed that this proposal by United We Can is “untimely” because this party, which is part of the government, should have waited for the opinion of the commission of experts which should have its report ready this month. It is worth remembering that one of the milestones in the arrival of the Next Generation fund is precisely the entry into force of the tax reform linked to the report of this commission.

Admittedly, it would have been desirable for the experts to have been heard earlier, because, beyond the ideological issues, corporate taxation is subject to significant issues.

One of the most discussed topics is whether large Spanish companies pay little or a lot company tax, even if, according to certain ratios, they pay less than SMEs. This does not necessarily imply a problem of economic capacity, since a large firm may have many poor shareholders, and a rich one may have many small firms.

However, what could be competition issues because large companies, paying less tax, can prevent the entry of SMEs into the markets they control. But even assuming that large corporations should pay more tax on their profits, this goal is not easy to achieve.

The main reason why large companies pay less corporate tax in Spain is that large groups make a good part of their profits abroad. This income, when brought into Spain in the form of dividends, is usually 95% discounted, and until last year it was completely exempt. United We Can proposes in its proposal to reduce this bonus and that it does not apply to all dividends.

However, this would mean that the investment of Spanish companies abroad would pay more than in Spain. And it’s contrary to the free movement of capitalaccording to the reiterated case law of the Court of Justice of the European Union, which recently canceled for this reason the sanctions linked to the declaration of assets abroad.

Another problem is that Spain would violate its agreements to avoid double taxation with many countries. And finally, and even simpler, many companies they would not distribute a dividend if they have to pay again to bring the profits of their subsidiaries back to Spain.

If the companies do not pay dividends, the profits of the subsidiaries will also not be taxed in Spain. This assumes that it is not collected, and companies that want to distribute dividends, what they would do is apply for a loan. This is what Apple did a few years ago to distribute a dividend, because bringing foreign profits to the United States was much more expensive than paying interest on a loan.

If the companies do not pay dividends, the profits of the subsidiaries will also not be taxed in Spain

As we see, this is a global problem and to solve it, a global solution is needed, such as the OECD “inclusive framework” agreement. Here, one-sided approaches do not help, nor do they help us, because they are soft.

Yet the main challenge with corporate tax is that it collects less and less, even as the economy recovers. One of the influencing factors is compensation for tax losses (negative tax bases in tax jargon) from previous years.

Here, you have to be very careful with the proposals because they can have a counterproductive result. For example, United We Can proposes to limit the tax loss compensation period to four years, whereas it is now unlimited.

Many businesses have suffered tax losses over the years. If given four years to compensate, companies with carried forward losses should be able to apply the full balance in subsequent years. Otherwise, the rule would forfeit the balance in their favor and would be patently unconstitutional both because of the principle of economic capacity and because it is a retroactive limitation of acquired rights. Therefore, the limitation of the compensation period means that companies should be allowed to set off the entire outstanding balance of past losses against profits for the year.

From now on, the biggest companies can offset by negative tax bases, with carried forward losses, only 25% of their positive bases (adjusted profits) for the year. This means that 75% of the benefit is taxable. If this limit were to be removed, many companies would enter nothing for the next four years.

This is not theory, this is what happened in the first installment of 2016, when the increase in the limit to 70% of profits (for tax purposes) for the year came into effect. vigor. For this reason these draconian limits had to be restored in Royal Decree-Law 3/2016 because the deficit soared and Spain was fined 6,000 million euros by the European Commission. Ideally, there would be no accumulated tax losses of this caliber, with which they could all be offset and also, in a more reasonable time frame, like four years. But it’s just does not take into account the reality of companies and corporate tax in Spain.

Finally, another idea that seems good in principle is to increase the corporation tax of electricity companies by 10 points. This was already raised in its time by Podemos, as a bill in Congress for the bank. With the collection generated, we would seek to finance the consumers who earn the least. The problem here is the side effects.

In general, taxes are levied on an activity when they aim to penalize it. If an electricity company is going to pay more taxes for the result of its investments in Spain, then it will do them in other countries. The problem is that to undertake the ecological transition, we need more investment in the production and distribution of electricity. On the other hand, only by increasing the supply of electricity will it be possible to reduce prices they are fired as we all know.

Taxes are also politics and ideology. But these taxes operate on an economic reality. Moreover, these taxes not only collect, but also change economic decisions. This is particularly the case for corporation tax.

It is precisely for this reason that it would be appropriate a technical and informed debate also on tax issues. Rather than discussing what we would like in terms of taxation, we need to discuss and agree on alternatives possible with their costs and their consequences, positive and negative.

It is precisely for this reason that expert reports are necessary. We have a lot at stake, and not just European funds. It should be remembered that sometimes the ground of hell is paved with the best intentions.

*** Francisco de la Torre Díaz is an economist and tax inspector.


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