IMF Examines Tax Spillovers, Launches Consultation

Tax planning by multinationals a significant concern worldwide

Consultations will involve variety of groups in discussion of relevant tax issues

IMF’s work to complement other work currently underway

The IMF will gather views from governments, civil society, academics, and private sector stakeholders for its analysis of economic ”spillovers” in international taxation—meaning the impact that one country’s choices in this area may have on other countries. Interested parties are asked to submit comments by March 31, 2014.

IMF staff will prepare a paper on the topic—with particular focus on the impacts for low-income countries—for discussion by the institution’s Executive Board in early May.

Tax avoidance

International tax issues are now prominent in public debate and are attracting considerable attention from policymakers. They also recur repeatedly in the advice given by the IMF to its member countries, notably in its technical assistance work.

There are broadly two sets of spillover issues that arise: the opportunities for tax avoidance (sometimes referred to as “base erosion and profit shifting”) by multinational companies that are created by the interaction between national tax regimes and practices, and (illegal) tax evasion by high net wealth individuals using low-tax jurisdictions. The current IMF work on which the consultation is being launched relates to the first area.

“It is widely recognized that the current international tax architecture, designed for a very different world of a century or so ago, is under considerable strain,” said Michael Keen, Deputy Director in the IMF’s Fiscal Affairs Department. “With that in mind, the IMF work will consider both the operation of the current architecture and more fundamental reforms that have been proposed by academics, civil society, and others.”

Particular areas of focus

The opportunities for avoidance that are now being made so visible are just one part of the spillovers problem, as corporations and individuals exploit gaps and inconsistencies arising from the interactions of national tax systems. The current set of national laws and practices potentially affect macroeconomic outcomes in terms of tax revenues, the level and direction of investment flows, and incentives to adjust national systems in response to the decisions of others.

The IMF’s spillovers analysis is expected to focus on, in particular, the impact of bilateral double taxation treaties on low-income countries; the...