## Tax Coordination Can Lead to a Fairer, Greener Global Economy

_IMF Blog, April 12, 2022_

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## Bibliographic details
- Authors: Vitor Gaspar, Shafik Hebous, Paolo Mauro
- Published: April 12, 2022

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### Overview
- Authors: Vitor Gaspar, Shafik Hebous, Paolo Mauro
- Date: April 12, 2022
- Central thesis: International tax coordination across three areas—taxing large corporations, sharing information on offshore holdings, and enacting fair carbon pricing—can raise revenue, tackle inequality, and fight climate change.

### Key points on global tax challenges
- Technology, globalization, and global warming have increased mobility of income and factors of production, creating cross-border tax challenges.
- Tax evasion and avoidance reduce revenue available for social spending and infrastructure, exacerbate inequality, and generate perceptions of unfairness.
- Uncoordinated national tax policies can produce damaging cross-border spillovers and leave all countries worse off.

### Coordinating on corporate taxation — Findings and implications
- Background: Widespread dissatisfaction with low tax payments by major multinationals despite annual profits of 9 percent of global gross domestic product.
- 137 countries reached a breakthrough in 2021 under the Two Pillars Solution of the Inclusive Framework.
- Pillar 1:
  - Principle: A portion of multinationals’ profits must be taxed where goods or services are used or consumed.
  - Finding: The agreed reallocation of tax revenue covers only 2 percent of global profit of multinationals.
  - Benefit: Sets a principle better adapted to digital commerce than unilateral digital services taxes.
- Pillar 2:
  - Establishes a global minimum corporate tax of 15 percent.
  - Impact estimates:
    - Some nations topping up their tax on “undertaxed” profit could increase corporate tax revenues by up to 6 percent globally.
    - Reversal of downward trend in corporate income tax rates could raise revenue by another 8 percent.
    - Combined (topping up plus reduced tax competition) effect: 14 percent.
- Policy recommendations and caveats:
  - Continue work to better adapt rules to low-income countries’ circumstances (examples: simplify aspects of corporate taxation, strengthen withholding taxes on cross-border payments, share more country-by-country information on multinationals).
  - Low-income economies should adopt complementary reforms, such as removing wasteful tax incentives, to reap benefits.

### Coordinating on personal taxation — Findings and recommendations
- Offshore wealth and tax loopholes exposed by leaks (Panama Papers, Paradise Papers) reveal a massive stock of offshore wealth and facilitate hiding of corrupt proceeds.
- Information sharing:
  - 163 countries have agreed to exchange information under the Global Forum on Transparency and Exchange of Information for Tax Purposes.
  - Need: Improve the reliability of exchanged information.
  - Recommendation: Promote beneficial ownership registries and centralize information in a public database; effective use of information is critical for enforcement.
  - Low-income countries need to develop more know-how to realize transparency benefits.
- Cross-border remote work:
  - Phenomenon: Increasing mobility of labor and rise of digital-nomad visas.
  - Estimate: Cross-border remote work reallocates personal income tax revenue between countries by 1.25 percent of global personal income tax revenue.
  - Implication: Coordination will gain importance to ensure consistent tax treatment between countries where employers and employees reside.

### Coordinating on carbon pricing — Findings and policy guidance
- Urgency: Rapid increase in greenhouse gas emissions risks global warming of more than double the tolerably safe limit.
- Proposal: An international carbon price floor analogous to a global minimum corporate tax.
- Benefits and features:
  - A few key emitting countries can start coordination and produce significant effects.
  - Discourages emissions and alleviates competitiveness concerns.
  - Would limit global warming to 2 degrees Celsius or less while accommodating alternative approaches (for example, regulation via equivalent price calculations).
  - Could allow differentiated responsibilities depending on income level.
- Near-term policy guidance amid energy price shocks:
  - Prefer targeted transfers or lump-sum utility bill discounts to support people rather than subsidizing fossil fuel consumption.
  - Near-term responses should not detract from investing in renewable energy and energy efficiency.
  - Countries that have set gradual rising paths for carbon taxation should stay the course—envisaged increases are far smaller than recent price gyrations from global shocks.
  - Use revenues to ensure workers and communities benefit from the green transition.
- International imperative: Agreeing on a carbon price floor (or equivalent measures) remains urgent.

### Conclusion — Rationale for cooperation
- History shows collaboration increases effectiveness in counteracting pandemics and conflicts.
- Cooperative tax reforms—better taxing corporations, fighting tax evasion, and acting on carbon pricing—can deliver a fairer and greener global economy.

*Source: IMFBlog — “Tax Coordination Can Lead to a Fairer, Greener Global Economy,” Vitor Gaspar, Shafik Hebous, Paolo Mauro, April 12, 2022.*

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## References

- [Fiscal Monitor](https://www.imf.org/en/Publications/FM/Issues/2022/04/12/fiscal-monitor-april-2022)
- [https://www.imf.org/wp-content/uploads/2022/04/FM-2022-Chart-1.jpeg](https://www.imf.org/wp-content/uploads/2022/04/FM-2022-Chart-1.jpeg)
- [https://www.imf.org/wp-content/uploads/2022/04/FM-2022-Chart-2.jpeg](https://www.imf.org/wp-content/uploads/2022/04/FM-2022-Chart-2.jpeg)

_Source: https://www.imf.org/en/blogs/articles/2022/04/12/blog041222-sm2022-fm-ch2_