Comments to IMFs consultation on economic ”spillovers” in international taxation

Christine Lagarde IMF

PWYP Norway has sent a consultation comment to International Monetary Fund (IMF) and challenges definitions used by IMF on tax-issues. IMF has invited governments, civil society, academics and private sector stakeholders to comment on the topic.

Tax “spillover” is about the negative competition that comes from some countries rules. They make rules that take away the tax fundament from other countries.

IMF has identified that there are broadly two sets of “spillover” issues that arise. The first one is opportunities for tax avoidance by multinational companies that are created by the interaction between national tax regimes and practices. The other one is (illegal) tax evasion by high net wealth individuals using low-tax jurisdictions.

Read IMFs consultation here

In the letter, PWYP Norway challenges such a distinction because it does not reflect very well the case situations around the world on the ground. It is therefore not useful in order to develope a thinking and guidance for IMFs further work. 

Three main points from PWYP Norway

There are three main points that PWYP Norway wants IMF to include in the further analysis. The first point is that companies need to pay taxes where the resources are extracted. Then when the resources are converted into goods and services. Taxes must also be paid in the market where the goods and services are sold.

Reduce capital flight

The second point is to secure an optimal composition of the tax-systems to reduce capital flight. In addition good rules on beneficial ownership and capital gains is needed. If the derivatives are held in a seperate tax-base, the capital flight can be significally reduced.

In the third point PWYP Norway argues that extended country-by-country reporting is an important instrument in order to give investors back control over their investments in the companies. That will help the investors to better valuate the companies they wants to invest in. It cannot alone solve all the problems with profit shifting, hence the need to see the extended country-by-country reporting in a larger context.  It will also increase the democratic control with resource extraction and ensure equal competition between the companies.  

A challenge to the government

PWYP Norway sent a copy of the letter to the Norwegian Ministry of Finance. We hope that the Minister will promote our arguments in their disussions during the IMF spring meetings.