Puerto Rico gains as US multinationals sidestep OECD global tax rules
On July 1, 2021, more than 130 countries agreed to adopt an ambitious and comprehensive global tax framework, which consists of a 15% minimum tax rate for multinational corporations. In October 2022, following negotiations, the new tax framework was formally adopted and applies to corporations with income from global operations.
The measure was created to discourage the transfer of profits from multinationals to low-tax jurisdictions, an aspect that raised concerns associated with the federal incentives applicable to CFCs operating in Puerto Rico.
There are two “pillars” in the agreement: Pillar I changes the way large multinationals pay their contributions and applies to those with annual global revenues exceeding $20 billion; Pillar II introduces the global minimum tax and applies to those with more than $750 million in annual global revenues. This pillar includes what is known as the GILTI (Global Intangible Low-Tax Income) contribution, which is the 15% rate.
In August 2022, Congress adopted the Inflation Reduction Act (IRA), which tentatively established, among other things, a 15% alternative minimum tax (CAMT) on adjusted income for large corporations with annual revenues greater than $100 million in the United States. This measure adopted some of the terms of the OECD global tax, necessitating additional amendments to the approved legislation to fully adapt it to OECD rules.
However, the United States did not adopt Pillar II to impose the 15% global minimum tax, which places North American corporations at a global tax disadvantage. The tax rate adopted for GILTI ranged from 10.5% to 13.125% for 2026 and beyond, below the threshold established by the OECD.
To the benefit of Puerto Rico, President Trump made it clear from the outset that he did not favor the United States’ adoption of Pillar II. The tax proposal in his “One Big Beautiful Bill” budget slightly increases the effective GILTI rate to 13.335%. Reflecting this position, his budget proposal included a new tax section, Section 899, dubbed the “revenge tax.”
The measure would increase federal contributions for investors from countries that the Trump administration believed taxed U.S. corporations “unfairly,” a clear allusion to the OECD’s global minimum tax.
The Trump administration proposed removing this section in exchange for U.S. companies not paying the 15% OECD tax. The proposal was recently accepted by the G-7 (a group of seven developed countries).
This also alleviates concerns in Puerto Rico regarding the prospects for foreign investment, as the attractiveness of local and federal tax incentives remains.
Author Leslie Adames is the director of the Economic Analysis and Policy Division of Estudios Técnicos Inc.
