The International Monetary Fund (IMF) released a staff paper noting that corporate tax avoidance negatively impacts all economies, but hurts developing countries the most. The IMF’s release comes as the G20, the Organization for Economic Cooperation and Development and United Nations bodies seek vehicles to diminish corporate tax avoidance.
“The developing world loses more in corporate tax avoidance than it receives in aid from developed countries,” stated Eric LeCompte, Executive Director of the religious anti-poverty group, Jubilee USA Network. “The paper shows that when multinational corporations shift their profits to another country to pay less taxes, we see higher levels of global inequality.”
The IMF paper is entitled “Spillovers in International Corporate Taxation.” “Spillovers” are the impact of one country’s policies on another country. By shifting profits to countries with low tax-rates (often so-called “tax havens”), corporations avoid paying their taxes in the countries where they make those profits. The paper notes that this is a particularly large problem in developing countries, which need corporate taxation to fund social services. The paper argues that “many developing countries…need to be better protected against the avoidance of tax on capital gains on natural resources.”
“These ‘spillovers’ are more like a flood,” noted LeCompte. “For every $1 poor countries are receiving in official aid, nearly $10 is leaving through corruption and tax avoidance.”
Read the IMF paper.