IMF: Corporate tax schemes hurt developing countries

Developing economies are increasingly hurt by the way global corporations exploit taxation differences and move profits to low-tax locations, an International Monetary Fund (IMF) report said on Wednesday. It said few countries can protect themselves in a competition for direct investment that increasingly appears like a ‘race to the bottom’ in setting corporate tax rates. Moreover, the report continued, companies are increasingly able to shift and relocate more intangible assets – like intellectual property -- to avoid taxes. The IMF said that the more countries give in to investors’ requirements on taxes, the more they are hurting the global community. In addition, tax-cutting and legal tax avoidance by corporations are having an impact on countries’ fiscal strength, undermining their ability to fund government just at a time when many are fighting deficits, it observes. Incentives are ‘significantly undermining revenue in developing countries,’ the IMF said, noting that ‘overall fiscal performance is more vulnerable to pressures on these receipts.’ The amounts at stake in a single tax-planning case now quite routinely run into tens or hundreds of millions of dollars. These sums may be small relative to total tax revenue in sizable advanced economies, but are large for the developing countries,’ it added, according to a news agency.