Opening Remarks by Managing Director Georgieva, “Virtual Book Launch – Corporate Profit Taxes Under Pressure”
As prepared for delivery
May 4, 2021
Thank you Vitor for this kind introduction. And congratulations on this great achievement to Ruud, Alex, Vicki and all contributors in our tax and legal departments and beyond.
“Corporate tax under pressure” is a enlightening, complete, and timely contribution to a vital global debate. I am delighted to help launch it.
Taxes are as old as civilization … and so are the efforts to escape them. Put a tax on windows and people will brick them. Tax imports too heavily and you get smugglers. Tax corporate income and corporations will shift their profits, invest or otherwise arrange to avoid paying. But well-designed taxes can minimize this behavior.
As manager of the international financial system, the IMF has long recognized our to have to promote global corporate taxation that the two supports productive businesses and is fair to our Member States. This is particularly important for low income developing countries, which often depend the most on corporate taxes.
A unique opportunity to fix the system
In hindsight, the greatest historical driver of tax policy innovation has been war. The cost of WWI and post-war reconstruction helped create modern corporate taxation. Now we are facing the two disastrous and very costly crises of COVID and climate change.
These urgent needs, combined with a renewed spirit of multilateralism, give us a unique opportunity to rethink and repair the international tax system – to create a system that is truly fit for the 21st-century.
Here the IMF fully supports the OECD Inclusive Framework on Base Erosion and Profit Shifting. It involves 139 economies, offering a chance to avoid conflicting actions between these countries.
And Janet Yellen sparked the conversation on international tax reform last month by announcing a push with G20 countries for a global minimum corporate tax rate.
This kind of multilateral approach is the only way to ensure that highly profitable multinational corporations both pay sufficient taxes and remit them to countries where they are heavily involved, including low-income developing countries.
We are particularly optimistic for a global agreement on corporate taxation in 2021. And it is urgent to avoid, over time, the risk of degenerating into a chaotic tax or trade war in which everyone loses. The new book discusses the proposals of a global minimum tax, among many topics.
Answer the big questions
We offer it to those directly involved in the reform debate, and to all those who are interested – to help them focus on and address the issues. fundamental questions:
What is wrong with the current system and why? What principles should guide a forward-looking system? Given the extreme complexity and difficulty of designing effective taxes, how can these principles be transformed 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 example, how should we treat the world digitized companies which are among the most valuable and profitable in the world? Many of them have behaved very well during the pandemic, doing business in almost every country.
But centuries-old rules grant taxing rights only to countries where companies have a “physical presence”. Internet giants – and many other companies – are also avoiding taxes by putting value Intangible assets in low-tax countries and profit transfer to them too.
How to solve this problem without creating new problems?
The book explores how businesses may be taxed in part or only where their end consumers are established, rather than only where production takes place or where the business legally resides. This creates some risks but would be fairer in a digital economy – and would reduce harmful tax competition.
Another solution is a new way to distribute the profits of multinationals Between countries. Companies currently separate accounts from related entities and act as if they are all independent. A simpler way is to consolidate profits of a multinational group and distribute the profits among countries based on factors such as employment, capital or sales in each country. It would also put an end to harmful profit shifting.
And these are just a few of the solutions in this wonderfully helpful book.
Let me end by recalling the tax on windows which started in 18e– century Great Britain. This was an innovation – increasing privacy by allowing tax inspectors to do their jobs without entering homes. But as people smashed windows, it became a distortion – a hated tax on light and fresh air.
The international corporate tax system has become equally dark and distorted. But this year we have a special opportunity to bring the light of simplicity and fairness to it.
We have to live up to it.
IMF Communications Department
Telephone: +1 202 623-7100E-mail: MEDIA@IMF.org