Wind of Change: IMF Chief Calls For New International Taxation System

Governments globally should take steps to adjust taxation systems to close loopholes allowing multinational corporations to avoid paying taxes in countries of their origin, International Monetary Fund (IMF) Managing Director Christine Lagarde said on Monday.

WASHINGTON (Sputnik) — The IMF chief said taxation allows governments to mobilize their revenues. She noted, however, that the process can be undermined by "overly aggressive tax competition" among countries, and companies abusing the system of international taxation.

"We need a tax system in which ordinary citizens are convinced that multinational companies and wealthy individuals are contributing a fair share to the public purse, to the common good," Lagarde stated at a conference in Abu Dhabi, the United Arab Emirates.

Wealthy individuals try to avoid taxes, Lagarde explained, and move assets to offshore locations. She argued that the automatic exchange of taxpayer information among governments could make it harder for businesses to follow the scheme.

The IMF chief noted that higher revenues stemming from closed loopholes will create more fiscal room, particularly for oil-exporting countries that have been hit by falling commodity prices.

"The size and likely persistence of this external shock means that all oil exporters will have to adjust by reducing spending and increasing revenue," Lagarde concluded.

IMF estimates show that developing economies lose up to 1.3 percent of their GDP in tax revenues due to inadequacy of the existing system.