This blog post was written by Christine Lagarde of the IMF. It's rare that I will repost from such a source. I do though for good reason: if she can say such things it is clear that tax justice is winning. Not all it wants, of course. But winning, nonetheless. We should celebrate successes, and hold out for delivery of viable alternatives
The public perception that some large multinational companies pay little tax has led to political demands for urgent action.
It is not difficult to see why.
Let me highlight three reasons why a new approach to international corporate taxation is urgent.
First, the ease with which multinationals seem able to avoid tax, and the three-decade long decline in corporate tax rates, undermines faith in the fairness of the overall tax system.
Second, the current situation is especially harmful to low-income countries, depriving them of much-needed revenue to help them achieve higher economic growth, reduce poverty, and meet the 2030 Sustainable Development Goals.
Advanced economies have long shaped international corporate tax rules, without considering how they would affect low-income countries.
IMF analysis shows, for example, that non-OECD countries lose about $200 billion in revenue per year, or about 1.3 percent of GDP, due to companies shifting profits to low-tax locations.
These countries need a seat at the table. The Platform for Collaboration on Tax, a joint effort by the IMF, World Bank, OECD and the UN is helping on this front.
Third, an impetus for rethinking international corporate taxation stems from the rise of highly profitable, technology-driven, digital-heavy business models.
These business models rely heavily on intangible assets, such as patents or software that are hard to value.
They also demonstrate that assuming a link between income and profits and physical presence has become outdated.
This in turn has sparked fairness concerns. Countries with many users or consumers of digital services find themselves with little or no tax revenue from these companies. Why? Because they have no physical presence there.
So, we clearly need a fundamental rethink of international taxation.
Yet this means countries must work together. Making progress requires coordination among all, and in the right direction.
New IMF research analyzes various options in the context of three key criteria: better addressing profit-shifting and tax competition; overcoming the legal and administrative obstacles to reform; and ensuring full recognition of the interests of emerging and developing countries.
The current international corporate tax architecture is fundamentally out of date. By rethinking the existing system and addressing the root causes of its weakness, all countries can benefit, including low-income nations.
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……..……….then may I register my congratulations to you and your colleagues?
Well done.
I like noting change when it has the feeling of some success
Thanks
Tax justice for who though? The poorest people on the planet? Or the poorest people in the UK [if you’re British], the U.S. [if you’re American], Germany [if you’re German] etc. etc. ? Because if you want tax justice for the domestic population of your country [whichever country that may be] then the best way to achieve this is to undercut your peer countries. End of. And why as long as the U.S. is still the world’s largest power, attempts to crack down on tax avoidance are just meaningless. If you want tax justice for the poorest people in the U.K. then abolishing corporate tax will achieve this. If you want tax justice for the poorest people on the planet then you need a world government. So Mr. Murphy : tax justice for who?
Have you read what is said.
And have you noted the drive is against tax competition?
If not, why not?
If anyone else had told me that Christine Lagarde had come out with comments like that I would not have believed it. Well done to the Tax Justice campaign, it looks like this could be a major breakthrough, but I seriously wonder how long she has left in her post. G7 mncs will not take this lying down!
Provocative and surprising post Richard!
There is an alternative analysis, an alternative tax change which needs to be explored, and you clearly have the expertise to comment on it:
1. Minsky proposed abolishing corporate income taxes and corporate contributions to payroll taxes and replacing them with a VAT which recognizes that ultimately corporate taxes are a hidden sales tax paid by real citizens. Minsky (and Wray) also believed that payroll taxes are taxing a good thing – labour, and thus discourage a good thing – employment by firms who will rely more on overtime and outsourcing. That change also makes the domestic producers more competitive and it means the foreign producer is relatively less productive because more tax is collected from purchasing their products.
2. That would mean no fight over hiding corporate income in various jurisdictions – of course the private hiding still has to be fought.
3. There would be no discount on dividends (and perhaps capital gains) because there would be no double taxation. Hence people getting domestic or foreign corporate income would have to pay regular tax rates.
What is your view on Minsky’s proposed change?
Minsky, Wray et al are spot on if you ignore all the social reasons for tax and want to shift the burden from capital to ordinary people
They are also entirely naive, assuming we have perfect information on shareholders who all live where the companies they own are
To put it another way, this is where MMT acts in the interests of the far right – and why I have never been wholeheartedly able to endorse it or believe in the supposed left wing credentials of those who promote it
I utterly oppose these suggestions
Re my question – I did read your item on Wolf’s column and perhaps I should have responded more to your objections, but I think Minsky was making a different argument about the essence of taxation which should be considered on its own about – and these other considerations:
– those who ‘do not have’, and the poor are paying hidden sales taxes, while a VAT has exemptions and rebates.
– corporations are taking districts hostage within countries over taxes and incentives, and between countries for same, we have both districts and countries in a race to the bottom ever reducing corporate taxes, regularly facing disruption by such corporate behaviour.
– those who ‘have’, benefit most from such reductions.
– even Reagan originally wanted all income taxed at the same rates – of course the Republicans clawed that original change back over the years.
It seems to me there is more to gain if we go back to the original question of how we should really collect taxes, and who is really paying them as addressed by the brilliant Minsky?
Minsky asked the wrong question for the wrong reason and got the wrong answer
Minsky was an economist and they are the last people to ask about tax
Start with sociologists I suggest, and then political economists
But never an economic theorist
In any case Richard opened a terrific debate on FT for everyone who wishes to optimize the system and promote social justice – as with a most interesting response by Mr. Denham who concludes all taxes other than personal income and wealth taxes are consumption taxes.
He was responding to Professor’s Devereux’s letter as did Richard
https://www.taxresearch.org.uk/Blog/2019/03/13/destination-based-corporation-taxation-is-a-fantasists-unicorn/