The International Monetary Fund (IMF) has opened the debate on the possibility of harmonizing the taxation of earned income in order to avoid downward tax competition from countries with lower tax burdens. In the tax monitor, released Wednesday, the agency points out that taxes on individuals “in a global digital economy, just like corporate taxes, require cross-border coordination to cope with the erosion of tax bases. “Furthermore, it places this issue in a context in which labor mobility is on the rise, with the increase in teleworking following the pandemic.
The IMF points out that situations of downward tax competition can occur with countries that attract higher income if they have more advantageous tax policies than other countries with lower margins. This fact can also cause the territories with a higher tax burden are forced to reduce taxes. “Uncoordinated actions can lead to inefficient taxes,” he points out. “Without coordination (labor mobility and remote work) they can adversely affect efficiency, distribution and, in some cases, international economic and trade relations,” adds the IMF.
The document compares on several occasions the decisions that have been taken in the field of corporate tax to establish a common minimum rate in the countries of the Organization for Economic Cooperation and Development (OECD) and suggests that the taxation of income from work should continue the same line. The IMF points out that in federal states tax revenues can be offset by transfers from the state to the regions, but at the international level, the organization insists on the need to seek a common point to understand the effects of taxes in each country.
The reason the IMF highlights income tax as one that requires the most international coordination is that the pandemic has accelerated the trend to work outside the office and has even opened up the possibility – for some workers – to develop their own businesses. from anywhere in the world. To give figures to this phenomenon, the IMF points out that the number of countries offering visas for digital nomads went from 16 to 40 in the wake of the pandemic. This development indicates that the fiscal elasticity of labor mobility can increase tax competition between multiple professions and income groups.
Specific, the countries contest revenue worth around $ 40 billion, an amount that the IMF considers small. This figure is what the IMF estimates as the differential between countries with the increase in remote work, although it could be higher in the medium and long term if the number of employees working in a place other than their workplace increases or if it increases. They make salaries. This scenario poses a dilemma. First, international coordination facilitates tax collection and enforcement of tax policies. However, leaving room for some countries to strengthen their fiscal policy It allows you to tackle inequalities and increase incomes.
Countries contest revenues of approximately $ 40 billion
In this sense, and with the idea that the phenomenon of remote work will increase in the coming years, the IMF believes that the exchange of information at the international level improves tax collection. In addition, he is betting because teleworking offers the opportunity to review taxes on individuals to avoid income inequality. This is why it supports the creation of land registers and the improvement of the technology of the administrations of low-income countries, so that they can benefit from these exchanges of information.
In Spain, the debate on the tax harmonization focuses on Donation and Inheritance Tax and Wealth Tax. However, there are also differences between regions in terms of personal income tax. In fact, the president of the Valencian Community, Ximo Puig has repeatedly accused the Community of Madrid of exercising downward tax competitionthat means, fiscal dumping, for the application of a model that attracts businesses and citizens through more advantageous taxation. According to the calculations of the Register of Tax Advisory Economists (REAF), from 30,000 euros, the region governed by Isabel Díaz Ayuso is the one with the most advantageous personal income tax for single taxpayers without children under the age of 65 and without disabilities or any other personal circumstance that may give the right to a state or regional deduction.
Digital nomads in Spain
Our country is one of the countries that it has chosen to create specific visas for qualified professionals who want to work in our country as digital nomads. This authorization is contained in the Startup Law, a law that is now under parliamentary discussion and which could come into force at the end of the year. Professionals who want to apply must be foreigners who work for companies based outside of Spain and who earn at least 80% of their income this way. They must have at least 3 years of experience and be a graduate, among other requirements.
This visa also has tax advantages. The text -pending approval- makes it easier for foreign teleworkers to access non-resident income tax (IRNR) as it loosens requirements such as not having been a tax resident of Spain for the past ten years, which is limited to five. Furthermore, in the same legislation, the tax rate for digital nomads with income up to € 600,000 is lowered, from 24% to 15% for a maximum period of four years. From 600,000, the rate is 47%.
If applied the personal income tax (IRPF) under which Spanish residents are taxed, the situation would be less favorable for these employees. According to OECD data, the average maximum rate in our country is 43.5%, even if there are autonomous communities in which it exceeds 50% for the highest range. In other European countries, compared to the maximum rates of 25% in Slovakia, 32% in Poland or 38% in Norway. In Italy the maximum rate is 47.2% and in France 55.4%.