By Babajide Komolafe
THE International Monetary Fund (IMF) has said that Nigeria and other countries outside the Organisation for Economic Co-operation and Development (OECD) group lostabout $200 billion annually due to unfair global corporate tax system exploited by companies to shift profits to low-tax location.
IMF President, Christine Largade disclosed this last week while speaking on Corporate Taxation in the Global Economy at the Peterson Institute for International Economics, Washington D.C.
Stressing the need for new corporate tax rules across the globe, Largade said: “It may be difficult, but it is possible to create a corporate tax system that better reflects the changes in the global economy.”
Highlighting three major reasons for urgent reform of global corporate tax system, she said: “First, the ease with which multinationals seem able to avoid tax, and the three-decade long decline in corporate tax rates, undermines faith in the fairness of the overall tax system.
“Second, the current situation is especially harmful to low-income countries, depriving them of much- needed revenue to help them achieve higher economic growth, reduce poverty, and meet the 2030 Sustainable Development Goals. Advanced economies have long shaped international corporate tax rules, without considering how they would affect low-income countries.
“IMF analysis shows, for example, that non-OECD countries lose about $200 billion in revenue per year, or about 1.3 percent of GDP, due to companies shifting profits to low-tax locations. These countries need a seat at the table. The Platform for Collaboration on Tax, a joint effort by the IMF, World Bank, OECD and the UN is helping on this front.
“Third, an impetus for rethinking international corporate taxation stems from the rise of highly profitable, technology-driven, digital-heavy business models. These business models rely heavily on intangible assets, such as patents or software that are hard to value. They also demonstrate that assuming a link between income and profits and physical presence has become outdated.
‘This in turn has sparked fairness concerns. Countries with many users or consumers of digital services find themselves with little or no tax revenue from these companies. Why? Because they have no physical presence there.
So, we clearly need a fundamental rethink of international taxation. Yet this means countries must work together. Making progress requires coordination among all, and in the right direction.”