Speech

Open Workshop on International Taxation of the 7th IMF-Japan High Level Tax Conference for Asian Countries

April 6, 2016

Tokyo, April 6th, 2016

As Prepared for Delivery

Good morning, everyone. It is my great pleasure to welcome you to this workshop, co-hosted by the Japanese Ministry of Finance and the IMF. I would like to thank our co-host, the Ministry of Finance, for their generous support of the workshop, and staff of the IMF’s Fiscal Affairs Department and Regional Office for Asia and the Pacific, for all their effort in making this second open workshop on international taxation possible. I also thank the delegates from Australia, Hong Kong, and Singapore for volunteering to participate in the conference and share their valuable experiences. And I am happy also to welcome representatives of the OECD and Asian Development Bank and participants from the private sector and academia.

Over the last few years, tax evasion and avoidance across national borders have risen to one of the top global policy agenda. At a time of rising fiscal pressures and modest global growth, and of growing concern around the world at increasing inequalities in income and wealth, it is not surprising that so many people are deeply frustrated—even angered—by the ability of some to escape paying what is seen as their fair share of tax.

There is a widely shared recognition that too many multinational companies and wealthy individuals are “gaming” a creaking system of international taxation that was not designed for the modern global economy. To highlight this, let me quote from a speech by a famous President of the United States:

“Recently more and more enterprises organized abroad by American firms have arranged their corporate structures-aided by artificial arrangements between parent and subsidiary regarding intercompany pricing, the transfer of patent licensing rights, the shifting of management fees, and similar practices which maximize the accumulation of profits in the tax haven-so as to exploit the multiplicity of foreign tax systems and international agreements in order to reduce sharply or eliminate completely their tax liabilities both at home and abroad.”

This is not, as you might have suspected, from a speech by President Obama. This is actually from one delivered by President Kennedy, way back in 1963. These issues, clearly, are not new. What is new is the extent of popular discontent they now arouse.

The good news is that progress has been made in recent years. The G20-OECD project on Base Erosion and Profit Shifting (BEPS) is an important step towards reforming a century-old system and preventing multinational companies from artificially shifting profits to low-tax locations. I am sure you will hear a good deal more about this today.

There has also been progress towards establishing the automatic exchange of tax information as a global standard, which will make it harder for wealthy individuals to avoid income and wealth taxes by moving assets to offshore locations. This is a project with an enormous potential for building fairer and more trusted tax systems.

Of course, tax authorities in both advanced and developing countries will continue to face big challenges in international taxation, including in relation to traded services, the shifting of intellectual property across borders, and issues related to capital gains tax that you will be focusing on later. We are moving into what may be a different world, as we enter into a phase of BEPS implementation.

Now we need to make the international tax system work for all countries, and indeed our own research has shown that the revenue at stake on international taxation issues—relative to total revenue, or GDP—may actually be greater for non-OECD countries. There are hopeful signs of a more inclusive discussion of international tax issues than has been the case in the past, and I am sure you will hear about the OECD’s important initiative in this regard.

We believe that the IMF has special responsibility in the area of taxation, because of our global membership and because of our ability to provide analysis and world-class technical assistance—currently, to over one hundred countries every year. Our key objective is to help develop approaches to all taxation issues, both international and more generally, that are relevant and appropriate for all of our members, both advanced and developing. This workshop is one of the ways in which we aim to do this, by providing a venue for developing countries in the Asian region to raise and discuss their concerns in the areas of international taxation.

The Fund is also intensifying its cooperation on tax issues with other international organizations. One element of this is a joint initiative with the World Bank on tax matters launched at the Financing for Development conference in Addis Ababa last year, one pillar of which is a commitment to ensure that the developing countries’ views on international taxes are fully heard. Another, announced at the G20 in February, is the creation of a new “Platform for Collaboration on Tax,” bringing together the Fund, OECD, World Bank and UN—an immediate task of which is to develop ‘toolkits’ to implement BEPS, as requested by the G20.

Resolving the problems of international taxation will not address all the revenue challenges .The unspectacular work of building effective VATs, functioning personal income taxes and the like will remain critical and central to our work at the Fund. But fixing the international tax system must be a key part of building more effective and trusted tax systems. And to achieve that, it is important to listen to voices of taxpayers, tax experts, and academia and to be transparent in what we all say and do. This is why we have opened this workshop to the public, and we very much look forward to useful inputs from the many interested stakeholders here today.

Welcome once again. Our hope is that, by drawing on the wisdom and experience in this room, we can go further towards creating an international tax system truly fit for the 21st century—and put the problems so eloquently described by President Kennedy behind us.

Thank you