Fon Mathuros, Head of Media, World Economic Forum: Tel.: +41 (0)79 201 0211; Email: fma@weforum.org
· Globalization of supply chains and the rise of digital companies have strained the existing global tax system
· Tax loopholes have allowed more than $7.6 trillion to escape taxation in offshore companies
· The 48th World Economic Forum Annual Meeting is taking place on 23-26 January in Davos-Klosters, Switzerland, under the theme Creating a Shared Future in a Fractured World
· For more information www.weforum.org
Davos, Switzerland, 25 January 2018 – The existing tax system has allowed companies and individuals to stash more than $7.6 trillion in tax havens. Loopholes in the system deny citizens access to public goods and allow the wealthy to pocket profits. “The first element of corporate responsibility is paying your taxes,” said Joseph E. Stiglitz, Professor, School of International and Public Affairs (SIPA), Columbia University, USA.
However, the challenge of determining what exactly that tax rate is and where it is due has caused countries to pursue different policies and resulted in a patchwork of international policies. As a result, companies can shop around for low-tax jurisdictions, as governments risk setting off a race to the bottom by lowering corporate tax rates to attract business.
Companies now produce goods in multiple countries, and the globalization of supply chains has resulted in a global tax problem that no one country can tackle alone. It has become increasing difficult to determine where value was created and where taxes are due. Lack of coordination among countries has also resulted in geopolitical tensions. Ireland, for example, has faced pressure from the European Union to reform its tax code.
“I’m very committed to helping our country continue to be competitive,” said Paschal Donohoe, Minister for Finance of Ireland, citing a number of changes that the country has made to increase transparency and accountability. But, he added: “It isn’t Ireland’s role or ability to be a global tax collector.”
Another challenge facing global taxation is how to respond to digital economy, given that companies are more mobile and value-creation often takes place online. “Our corporate tax system is 100-years old, it’s not adapted to digital companies,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs at the European Commission.
Figuring out how to monetize information is one challenge for modernizing a global tax system. “[Technology companies] are now sucking data out of each of us and no one is getting paid,” said Davide Serra, Founder and Chief Executive Officer, Algebris Investments (UK). “As citizens, we must rise … We must say: you government, protect the privacy of my data.”
The EU has taken a leadership role in pushing tax reform ahead and coordinating within Europe. However, as the Paradise Papers revealed, an international process will be necessary to instil justice in the corporate tax system. At stake in the problem are more than balance sheets, accounting and corporate profits. Tax justice is about allowing citizens access to basic services.
“It’s not just about euros, yen and dollars,” said Winnie Byanyima, Executive Director, Oxfam International. “It’s about human rights.”
The World Economic Forum’s 48th Annual Meeting is taking place on 23-26 January 2018 in Davos-Klosters, Switzerland. More than 3,000 leaders from around the world are gathering in a collaborative effort to shape the global, regional and industry agendas, with a commitment to improve the state of the world.
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