Transcript Diapositive 1

Globalization and fiscal justice from
the perspective of emerging
countries
Daniel Gutmann
Professor at University Paris-1
Panthéon-Sorbonne
Globalization
• Positive and negative aspects of globalization
• Globalization means more than
internationalization
– Beyond conflicts of tax norms…
– Legal problem : relevance of territorial criteria for
tax rules
• Ex : territorial taxation ; territorial concepts (place of
effective management)
Problems of globalization
• Economic problems : tax competition as a result of
• Tax sovereignty of the States
– Few limitations : WTO, EU…
• Freedom of movement for persons and capital
– Pb where behavior is driven by tax considerations
– Political problems : is tax sovereignty effective?
• Effective economic pressure…
• … leading to loss of political autonomy
Why care about justice?
• Globalization itself is driven by theoretical
premises relating to « justice » in a broad sense
– Freedom of States ; freedom of individuals
– Freedom of commerce as a tool for a better allocation
of resources around the world
• Globalization and the limits of political theory
– A growing need for redistribution through taxes
– What is left of political freedom to redistribute
wealth? Capital/labour taxation
– What about tax democracy?
How do emerging countries react to
globalization?
• Traditional approach for many emerging
countries
– Need to attract foreign direct investment
– Low level of taxation
• Latin America : CIT average rate from 41% (1985) to
29% (2003) ; marginal PIT rate from 51% to 28%.
• Incentives granted to non-resident investors in tax
codes or investment regulations
• Between 1990 and 2006 total government revenues
averaged only 23% of gross domestic product (GDP) in
Latin America, against 42% in OECD countries
Legal issues connected to globalization
• Territoriality as a highly sensitive political issue
– Exemption of foreign active income perceived as
essential for emerging countries
– Alternative : tax sparing and similar techniques
– Voluminous literature on the intrinsic merits of
territoriality
Globalization means pressure on
emerging countries
• Low taxation generally means low level of public
resources
– Different situations : in Latin America, tax revenues
during the 2000-2006 period ranged from close to
32% of GDP in Brazil, to little more than 13% in El
Salvador
– However, even in Brazil, 90 per cent of working people
have earnings below the minimum threshold at which
personal income taxes must be paid
– Controversy about economic efficiency of tax
incentives
Fiscal justice : not in this world
• Public spending in emerging countries is much
lower than in OECD countries, and the quality of
vital goods and services such as education is poor.
• Redistribution of income after tax is often
ineffective (cf. 19 gini points in Europe OECD
countries / 2 points in Latin America)
• The rate of tax decreases as income increases, so
the poorer taxpayers are proportionally hardest
hit.
Pressure on emerging countries
tends to increase
• WTO  pressure on customs duties
• Excessive dependence on indirect taxes which
accounted for almost two thirds of tax
revenues in Latin America between 1990 and
2006, compared with one third in OECD
countries.
• VAT revenue + 70% from 1985 to 2003.
OECD countries no longer make
« exceptions » for emerging countries
• OECD countries face :
– Huge deficits ; even worse since the financial crisis
– High level of tax evasion
• Their reaction
– Anti-evasion rules : CFC rules, thin capitalization.
– Credit method as a generalized tool
• Territorial taxation is not the future
• Tax sparing belongs to the past
• French examples : Chile, Brazil
Next step for emerging countries :
forget about theory
• Territoriality and Justice : an endless debate
– Yes : reciprocity between the host state and the
investor ; justice between Nations ; residence as
an irrelevant connecting factor, etc.
– No : tax reciprocity is a myth ; tax is not a payment
for public services ; the reason why such a theory
should justify tax jurisdiction is not clear.
Tax policy orientations for emerging
countries
• Improve the fundamentals of the tax system
– Broadening the tax base
– Lowering tax rates
– Controlling efficiency of tax incentives
– Working on the underground sector
– Fighting tax evasion generally (domestic /
international)
• Improve tax collection (tax procedures)
In the future?
• Globalization as a chance for emerging countries?
– No race to the bottom  a chance for tax to serve
distributive goals
• Geographical harmonization
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Design of tax systems
Codes of conduct
Cooperation on tax collection
Join forces against tax evasion