Nearshore Forum: What the OECD’s Global Corporate Tax Reform Means for Nearshore

Earlier this year over 130 countries signed up for a global corporate tax reform agreement, spearheaded by the OECD, aimed at forcing international organizations to pay their fair share of tax, to be set at at least 15 percent.

The world’s digitalization and globalization has created a mismatch between corporations and the tax systems. Many major companies producing intangible goods like software have, over the past 30 years, moved their income to countries with low-tax jurisdictions and successfully avoided paying tax in their home countries. 

For example, in 2019, Google UK reportedly generated revenues of £1.6 billion (some US$2.2 billion) but paid just £44 million (approximately US$60.6 million) in tax.

Globally, average corporate taxes have fallen dramatically in recent years. According to the Tax Foundation, the average corporate tax rate between countries of the world was 40.11 percent. That figure almost halved to 23.85 percent by 2020.

For the Nearshore market, the OECD’s global tax reform could help propel economic growth by ensuring that some of the world’s biggest corporations pay tax where they operate.

The IMF has reported that in 2018, tax havens cost governments up to US$600 billion in lost corporate tax revenue. Of that figure, “low-income economies account for some US$200 billion”, more than the US$150 low-income countries receive in foreign aid.

Nearshore Americas spoke with Monserrat Colín, tax partner at auditing, advisory and tax firm JA Del Rio, to hear more about the groundbreaking reform. Monserrat provided a broad explanation fo the reform’s key points and told us how Mexico is approaching the change.

She discussed how the reform will aim to tackle base erosion and profit sharing (BEPS), the plan’s two-pillar approach and the potential timeline of change.