IMF warns of risk of eventual trade war without global tax deal

(May 5): The International Monetary Fund called on nations to agree on global rules for corporate-income taxation to avoid an eventual scenario where conflicts between countries make all of them worse off.

A multilateral agreement on taxes, like the solutions proposed by the US, is the sole way to ensure that highly profitable multinational firms pay sufficient tax in the places where they do business, including low-income countries, IMF Managing Director Kristalina Georgieva said on Tuesday.

The crises of Covid-19 and climate change present the world with an opportunity to rethink and fix the international tax system, Georgieva said in remarks prepared for a virtual book launch. The IMF supports the Inclusive Framework on Base Erosion and Profit Shifting at the Organization for Economic Cooperation and Development as a way to avoid tax conflicts, Georgieva said.

“We are particularly optimistic for a global agreement on corporate income taxation in 2021,” Georgieva said. “And it is urgently needed to avoid, down the road, the risk of spiralling into a chaotic tax or trade war where everyone loses.”

President Joe Biden’s plan to push for a 21% minimum levy for US companies’ foreign income could pressure many countries to raise their current rate. It has given fresh impetus to a years-long effort led by the OECD to counter corporate strategies to avoid paying tax by taking advantage of disparities between nations. Representatives leading the negotiations said last month they can see an agreement by mid-summer.