Recent Developments in Tax Harmonization/Coordination. Isaias Coelho Tax Policy Division Fiscal Affairs Department International Monetary Fund XVII Regional Seminar on Fiscal Policy CEPAL Santiago de Chile, January 26, 2005. Proposition 1.
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Tax Policy Division
Fiscal Affairs Department
International Monetary Fund
XVII Regional Seminar on Fiscal Policy
Santiago de Chile, January 26, 2005
There is no reason why the tax system should be uniform across countries.
Even complete domestic uniformity is possible only in very small countries.
However, tax structures seem to move in large waves as new paradigms develop – e.g. tax withholding and the VAT in the 20th century.
Tax systems tend therefore to converge, either by agreement (economic integration) or through emulation
Eventually, new significant differences arise when one country—or a group of countries—depart from the established wisdom. If successful, the experience generates a new tax reform wave.
Tax harmonizationinvolves an harmonious articulation of different tax systems. However, it has often been misunderstood as implying tax uniformity.
For this reason, perhaps the term tax coordinationshould be used instead (as for example in Barreix & Villela 2003).
too high rates
smuggling, counterfeiting, evasion
lower rates & tendency to regional rate alignment
...always involves lowering taxation, and is feared to involve a race to the bottom that could impair the ability of the state to properly finance its functions.
In the end, the mobile factor will be taxed more lightly than the factor less mobile (Wilson 2004).
Example: EU’s Code of Conduct for Business Taxation, for member countries and associated territories, involves a political commitment not to enter in harmful tax competition.
The EU Commission intends to actively promote the Code of Conduct to third countries.
-- separate accounting (current system); or
-- formula apportionment of revenue (better for compliance: Mintz 2004)