The implementation of the Minimum Domestic Complementary Tax (IMCD) in Uruguay, incorporated into the 2025–2029 National Budget Bill, is a significant milestone in the process of adapting the local tax system to contemporary international taxation standards. This measure falls directly within the framework of Pillar Two of the OECD’s BEPS 2.0 Project, whose central objective is to ensure that large-scale multinational groups pay a minimum effective tax rate of 15% on their profits, regardless of the jurisdiction in which they are generated.
Far from being an isolated adjustment, the IMCD represents a structural change in the way effective taxation is assessed, introducing an approach based on adjusted accounting results, covered taxes, and complex allocation rules. In this context, transfer pricing takes on even greater relevance, becoming a determining factor in the configuration of the effective rate and, therefore, in the eventual generation of complementary tax.
Technical design of the Domestic Minimum Top-up Tax
The Uruguayan IMCD has been designed to qualify as a Qualified Domestic Minimum Top-up Tax (QDMTT), in accordance with the Pillar Two Model Rules. This means that the tax:
- Applies to multinational groups with consolidated revenues equal to or greater than EUR 750 million.
- Is triggered when the effective tax rate in Uruguay is less than 15%.
- Allows the source jurisdiction to collect the top-up tax locally, preventing its collection by other jurisdictions through the application of the Income Inclusion Rule (IIR) or the Undertaxed Payments Rule (UTPR).
The calculation of the IMCD is based on the determination of the so-called excess result, obtained after applying substance exclusions (payroll and tangible assets) to the admissible net result. This approach reflects a clear alignment with the principle that minimum taxation should not penalize substantial economic activity, but rather schemes that erode the tax base.
Effective rate, adjustments, and tax consistency
One of the most technical elements of the regime is the determination of the effective tax rate (ETR), which is calculated as the ratio between the adjusted covered taxes and the admissible net result of the constituent entities located in Uruguay.
This calculation introduces multiple layers of complexity:
- Adjustments for deferred taxes.
- Specific treatment of refundable tax credits.
- Exclusion of certain entities (e.g., investment entities).
- Special rules for permanent establishments and conduit entities.
In this scenario, any distortion in the allocation of income, costs, or expenses among group entities can have a direct impact on the ETR, increasing the risk of a minimum complementary tax even when, from a purely local perspective, the tax burden could be considered reasonable.
The critical role of transfer pricing in the IMCD framework
The interrelationship between the IMCD and transfer pricing is not incidental, but structural. The arm’s length principle, far from being limited to a documentary exercise, becomes a key element in the correct determination of the base on which the minimum tax is calculated.
Allocation of results and tax base
Transfer pricing policies determine how profits are distributed within the multinational group. To the extent that certain Uruguayan entities assume routine functions with reduced margins, while residual profits are allocated to other jurisdictions, local profitability may be artificially compressed.
Under the IMCD regime, this situation may result in an effective tax rate of less than 15%, triggering the complementary tax. Consequently, structures that have historically been accepted from a formal compliance perspective may require a substantive review under the new standard.
Greater exposure to tax adjustments
The existence of the IMCD increases the tax administration’s incentives to question intra-group transactions, particularly in traditionally sensitive areas:
- Low value-added intra-group services.
- Royalties for the use of intangibles.
- Intra-group financial transactions.
- Distribution models with limited margins.
A transfer pricing adjustment can not only generate higher income tax, but also modify the calculation of the ETR and, therefore, increase the minimum complementary tax, amplifying the economic impact of the adjustment.
Consistency between BEPS documentation and Pillar Two
Consistency between the Local Report, the Master Report, the CbCR, and the information used to calculate the CII is critical. Discrepancies in functional characterization, risk allocation, or the identification of intangibles can be interpreted as signs of aggressive tax planning, increasing exposure to coordinated audits between jurisdictions.
Operational and strategic risks for multinational groups
The entry into force of the IMCD requires multinational groups to adopt a comprehensive and preventive approach. Among the main risks are:
- Unexpected increases in the effective tax burden.
- Loss of tax efficiency in regional structures.
- Contingencies arising from retroactive adjustments.
- Greater complexity in tax compliance and reporting.
At the same time, the new regime requires closer integration between tax, accounting, and transfer pricing areas, as well as periodic review of operating models.
The IMCD and transfer pricing: a strategic decision, not just a tax one
The introduction of the Minimum Domestic Complementary Tax in Uruguay redefines the way multinational groups manage their tax burden. Under the framework of Pillar Two, the correct allocation of results takes on a central role, and transfer pricing is consolidated as a critical element in determining the effective rate and mitigating the complementary tax.
In this context, transfer pricing policies that do not adequately reflect the economic reality of the group can generate unwanted tax effects, increasing exposure to adjustments and contingencies. An early technical review, aligned with IMCD criteria, is key to preserving tax efficiency and ensuring consistency between BEPS documentation and minimum tax calculations.
TPC Group advises multinational groups on the comprehensive assessment of the impact of the IMCD, combining expertise in transfer pricing and international taxation to design robust, defensible structures aligned with Pillar Two standards.
Source: https://documentos.diputados.gub.uy/docs/L50/Repartid/R0386.pdf