May 4, 2021
PRESS OFFICER:
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Thank you, Vitor, for the kind introduction. And congratulations on this great achievement to Ruud, Alex, Vicki, and all the contributors in our Fiscal Affairs and Legal Departments, and beyond.
“Corporate Income Taxes Under Pressure” is an illuminating, comprehensive, and timely contribution to a vital global debate. I am thrilled to help launch it.
Taxes are as old as civilization… as are efforts to escape them. Put a tax on windows and people will brick them in. Tax imports too heavily and you get smugglers. Tax corporate income, and companies will shift profits, invert, or otherwise scheme to avoid paying. But well-designed taxes can minimize this behavior.
As a steward of the international financial system, the IMF has long recognized our duty to promote global corporate taxation that both supports productive business and is fair to our members states. This is especially important for low-income developing countries, which often depend on corporate taxes the most.
A unique opportunity to fix the system
Looking back, the greatest historical driver of tax policy innovation has been war. The cost of World War I and post-war reconstruction helped create modern corporate taxation. Now, we face the two disastrous and very expensive crises of COVID and climate change.
These urgent needs, combined with a renewed spirit of multilateralism, give us a unique opportunity to rethink and fix the international tax system – to create a system that is truly fit for the 21st-century.
Here the IMF fully supports the OECD’s Inclusive Framework on Base Erosion and Profit Shifting. It involves 139 economies, offering a chance to head off conflicting actions among these countries.
And Janet Yellen energized the international tax reform conversation last month by announcing a push with G20 nations for a global minimum corporate tax rate.
This type of multilateral approach is the only way to ensure that highly profitable multinational firms both pay sufficient tax and pay it to countries where they have significant engagement, including in low-income developing countries.
We are particularly optimistic for a global agreement on corporate income taxation in 2021. And it is urgently needed to avoid, down the road, the risk of spiraling into a chaotic tax or trade war where everyone loses. The new book discusses proposals for a global minimum tax, among many topics.
Taking on big questions
We offer it to those directly involved in the reform debate, and all who are interested – to help them focus on and address the fundamental questions:
What is wrong with the current system, and why? What principles should guide a future-looking system? Given the extreme complexity and difficulty of designing efficient taxes, how do we turn these principles into practical solutions?
One thing I love about IMF economists is that they are dedicated to helping our members make policies that work in the real world.
For instance, how should we treat the globe-spanning digitalized companies that are among the most valuable and profitable in the world? Many of them have fared very well during the pandemic, doing business in nearly every country.
But century-old rules give taxing rights only to countries where firms have a ‘physical presence.’ The internet giants – and many other firms – also avoid taxes by putting valuable intangible assets in low-tax countries and shifting profits to them as well.
How do we fix this without creating new problems?
The book explores how companies can be partly or solely taxed where their final consumers are based, rather than only where production takes place, or the company legally resides. This creates some risks but would be fairer in a digitalized economy – and reduce harmful tax competition.
Another solution is a new way to allocate profits of multinationals between countries. Companies currently separate the accounts of related entities and act as if they are all independent. A simpler way is to consolidate the profits of a multinational group and apportion the profits to countries based on factors like employment, capital, or sales in each country. This would also put an end to harmful profit shifting.
And these are just a few of the solutions in this wonderfully useful book.
Let me close by recalling the tax on windows that started in 18th-century Britain. It was intended as an innovation – increasing privacy by allowing tax inspectors to do their work without entering homes. But as people bricked up windows, it became a distortion – a hated tax on light and fresh air.
The international corporate tax system has become similarly dark and distorted. But we have a special opportunity this year to bring the light of simplicity and fairness to it.
We must rise to the occasion.
Thank you.
