Spain Considers Corporate Tax Floor in Nod to Global Overhaul

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The Spanish government is considering setting a minimum corporate tax rate of 15% next year, embracing a global initiative to standardize treatment of multinationals. 

Prime Minister Pedro Sanchez’s Socialist party is inching closer to a deal with its junior partner, Unidas Podemos, to set a floor that would limit large companies from seeking too many tax credits, said two government officials familiar with the negotiations. 

Podemos, a left-wing group repeatedly at odds with Sanchez over economic policy, has demanded the measure for the 2022 national budget as a condition of support for accompanying fiscal plans.

If that succeeds, Spain would become one of the first major economies to follow through on a global deal to revamp corporate taxes and end a race to the bottom in which governments offer ever-lower rates to lure international firms. By contrast, Ireland and a handful of other countries are resisting, potentially complicating the planned 2023 implementation of a preliminary accord brokered by the OECD.

“I don’t think Spain can afford to do this without the explicit approval from Brussels or a final OECD deal,” said Javier Diaz-Gimenez, professor of economics at IESE Business School in Madrid. “The risk is that you might drive investment away and end up with less tax collection.”

Read More: Plans for a Global Minimum Tax Revolution, Explained: QuickTake

Spain currently taxes corporations at a rate of 25%, but it offers benefits that reduces the effective rate many companies pay. 

Europe’s fourth-largest economy is one of over 130 countries and jurisdictions backing the plan to make multinational companies pay an effective minimum rate of at least 15%. Group of 20 leaders plan to meet in October to try to finalize the global tax deal. 

Setting a 15% floor would not significantly change to the country’s tax framework, Economy Minister Nadia Calvino said in an interview with daily El Pais published on Sunday. 

The government has asked a group of experts to deliver recommendations by February for an overhaul of the tax system. The revamp could further strain ties with business after clashes with the Sanchez administration over a minimum wage hike and a windfall tax on utilities to limit energy bills.  

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