COVID-19: Urgent Changes to Tax Systems

Measures for better tax collection are urgent because the 2008 crisis made it clear that tax evasion by the wealthy is immense.

Tax avoidance has left governments with fewer resources to meet the critical priorities left by the pandemic.

The Independent Commission on International Corporate Tax Reform – ICRICT – proposes in its report The Global Pandemic, Sustainable Economic Recovery and International Taxation, published on June 15, 2020, five measures to address the economic crisis by COVID-19.

5 axes of the measures

If the measures were implemented simultaneously at the global level, they could support tax redistribution, provide governments with greater resources and protect the most vulnerable people. The axes for such measures are as follows:

1.Introduce taxes on digital services, with progressive character and to be applied on the economic income generated by globalized companies in this sector.

2.Applying a higher tax on the extraordinary profits of large companies in oligopolized sectors.

3.Agree globally on a minimum effective corporate tax rate of 25% in each country, in order to stop the erosion of tax bases and profit shifting.

4.Require more transparency from companies receiving public support and that they are obliged to publish their country-by-country report (with the main financial and tax data in each territory in which they operate).

Publish data on offshore wealth so that each country can effectively and progressively tax the net worth of its residents, with greater control of the real rates paid by high net worth and high income taxpayers.

Urgent changes in tax systems (that do not benefit the wealthy)

Joseph Stiglitz, Nobel Prize winner and member of ICRICT, indicates that the economic crisis caused by the pandemic has generated a scenario in which governments must increase spending, but without any margin.

For him, in developing countries the scenario is more complex because they must deal with challenges they already had.

“Measures for better tax collection are urgent because the 2008 crisis made us realize that tax evasion by the rich is immense,” he said at the press conference where the report was presented.

“changes to the tax system are urgent, because today it is immoral that the crisis is costing the most vulnerable people the most.”

Thomas Piketty, another member of this entity, explains that changes to the tax system are urgent, because today it is immoral that the crisis costs more to the most vulnerable people.

“Public opinion will not continue to support globalization if people see that globalization only benefits the rich. The system needs to be fair, there needs to be no distortions,” he says.

Evasion = fewer resources to cover the pandemic

The organization points out that tax evasion has left governments with fewer resources to meet the critical priorities left by the pandemic.

Globally, tax evasion diverts 40% of companies’ foreign profits to tax havens, according to ICRICT Commissioner Gabriel Zucman.

For its part, the IMF’s Fiscal Affairs Department estimates that total annual corporate tax losses associated with profit detour amount to more than $500 billion, with $400 billion for OECD member states and about $200 billion per year for developing countries.

American multinationals alone cause the European Union to lose nearly €25 billion annually in corporate taxes.

“Illicit financial activity has already increased, and is expected to increase further, during the COVID-19 crisis, with developing countries suffering the most from instability and shifting attention,” says ICRICT.

Apply a higher tax rate for large companies in oligopolized sectors While the rest of the economy is sinking from the crippling impact of the coronavirus, ICRICT notes that the businesses of the largest tech companies are thriving.

“Amazon founder and CEO Jeff Bezos, for example, has seen his net worth grow by 30.6% in the past two months, bringing it to $147.6 billion; the fortunes of Bezos and Zuckerberg combined grew by nearly $60 billion, or 14% of the $434 billion total. Amazon’s sales rose 26 % to $75.5 billion in the first quarter,” the report said.

Source: Update