Argentina Slashes Corporate Tax

By Global Tax Weekly

Despite plunging corporate tax rates across the world, the jury’s still out on whether there’s truly a corporate tax rate to the bottom occurring. Many have predicted the death of corporate tax in the not-too-distant-future. As I surmised on this subject recently, such claims feel somewhat exaggerated and a tad hysterical. Surely, public opinion would be so hostile to such an eventuality that governments simply wouldn’t allow it? It’s a safe argument for me; an argument that can only be settled after the next decade or three.

Nevertheless, there can be little doubt that robust competition is taking place between jurisdictions on corporate tax at present, and the recently completed tax reform legislation in the United States, which slashed corporate tax to 21 percent, has probably intensified it. It can’t be a complete coincidence that China kicked off 2018 by announcing new company tax exemptions, particularly for foreign-investment-funded enterprises.

I doubt it will end with Argentina, where the Senate recently signed off on a Budget for 2018 that includes a staggered 10 percent cut in corporate tax. Indeed, from the point of view of businesses and foreign investors, if this notably large corporate tax cut triggered a wave of copycat measures across the region, few would likely complain. After all, Latin American countries have gained notoriety for their complex and fragmented tax and regulatory regimes.

Certainly, there is plenty of scope for additional tax reform in Argentina itself, and looking at the country’s ease of tax compliance ratings, a simple corporate tax cut isn’t going to make a great deal of difference to the lives of taxpayers. This is because taxes on company profits are already small relative to the overall tax contribution of businesses. But, astonishingly, according to PwC, the total tax rate faced by companies in Argentina is still 106 percent.

Argentina has actually made significant improvements to tax compliance processes in recent years, largely through increasing digitalization of tax filing and payment procedures. But, as PwC observed in its latest Paying Taxes report, technology can only achieve so much, as can changes to corporate tax at the federal level. Ultimately, in countries with multi-layered governments like Argentina, there needs to be political reform, before necessary administrative reforms can take place, and there are few signs that this is about to happen.

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