IMF Reviewing Global Tax Solution
The hedge fund trade to gain exposure and then encourage a U.S. corporation to enter into an acquisition transaction with a foreign corporation where it incorporates internationally to lower its tax burden, known as a corporate inversion, might have slowed of late, but the issue is now being addressed at an international level.
At IMF, José Antonio Ocampo looks to reign in corporate tax avoidance
Multi-national corporations organizing in a tax haven du jour with no meaningful presence in the region with the purpose of avoiding taxes should end and José Antonio Ocampo, former United Nations Under-Secretary-General, Minister of Finance of Colombia and current Independent Commission for the Reform of International Corporate Taxation (ICRICT), is among those leading that effort. In an interview with ValueWalk before taking the stage to address a panel discussion on the topic, he outlined the efforts underway, saying much more needs to be done than is currently under consideration.
Speaking from Lima, Peru, where the International Monetary Fund is having meetings, Ocampo said transparency and limiting the ability of a multi-national corporation to evade paying taxes were a significant concern. “International corporate tax reforms should be considered from a global public interest perspective rather than national or corporate advantage,” he said in a statement in advance of the release of an ICRICT report calling for stronger global tax reforms.
More needs to be done: make the scale of tax manipulation transparent
“Much more needs to be done,” he said, echoing other statements from participants and noting implementation of solutions will likely emerge as the primary challenge to the initiative, echoing the voices of other economic leaders attending proceedings in Lima.
“The current reform efforts of the G20/OECD Base Erosion and Profit Shifting initiative takes steps in the right direction but much more needs to be done to address the core deficiencies of our system for taxing global corporate profits,” Joseph E. Stiglitz, professor and Nobel Prize winning economist, said in a statement. That “more” that needs to be done is, at a basic level, just providing visibility into the level of tax avoidance, Stiglitz noted. “The failure even to require public country-by-country reporting, which would at least make the scale of manipulation transparent, is especially disappointing.”
The current system that allows corporations to play a game of tax arbitrage to select the geographic region that provides the most accommodative is exasperating a negative situation. “The current system is feeding the historical levels of inequality, impeding the fulfillment of human rights, tearing away at the social fabric of countries and endangering future economic growth,” Magdalena Sepúlveda, former United Nations Special Rapporteur on Extreme Poverty and Human Rights, said in a statement.
BEPS could have gone further
The Commission’s primary recommendation is that multinational corporations act single and unified firms and should be taxed accordingly, abandoning what critics call the legal fiction of the separate entity principle. Critics claim the current outdated system encourages multinational corporations to organize complex structures with entities in tax havens to minimize tax.
“The BEPS project could have gone much further if they had not made so many concessions to tax advisers, who have much invested in the current system, and to governments, who want to retain powers to give concessions to business,” Ocampo said in a statement after the event. “International corporate tax reforms should be considered from a global public interest perspective rather than national or corporate advantage.”
Ocampo told ValueWalk that other pressing issues being directly addressed at the IMF meetings included the need for adequate emerging market financing, better managing capital outflows and the Chinese slowdown, which is particularly impacting those emerging market sovereign nations with commodity exposure.
Read the commissions response to the reform proposals here.