World Taxation on the Agenda

Economics, Premium POM

China Proposing International Tax System at September G20 Meeting

By JC Collins

Most of us have never heard of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.  The very name and phrase itself evokes an instant literary repulsion and peanut butter mouth. It is through such unattractive complex working groups and non-profits that the multilateral monetary transition is being engineered and implemented.  Western media and financial experts pay little, if any, attention to the broader SDR framework and international taxation developments.

As the international monetary system shifts towards a multilateral SDR based framework is it only logical that a system of taxation will also be implemented in concordance.  The purpose of such a system, as it is being expressed, is to minimize corruption and tax avoidance across borders.  This self-regulating of rent seeking is problematic in that it needs to be applied to all individuals and nations simultaneously.

A recent article in the Caixin Online, a Chinese news source, stated the following:

“A new global tax system should be fair, equal, inclusive and organized to cope with globalization, boost tax coordination and promote sustainable economic growth, Lou said at the meeting. Such a move would broaden global, regional and multilateral tax cooperation, and avoid overlap and discrimination, he added.”

“G20 countries have already reached some milestones in reducing tax evasion by companies and individuals. An inclusive framework to tackle issues like base erosion and profit shifting (BEPS), referring to exploitation of tax rule gaps to artificially shift profits to low or no-tax locations, has attracted 85 member nations so far, including all G20 countries.”

“In a bid to boost tax transparency, the G20 reiterated its call for a standard for the automated exchange of information by 2018, and for the signing of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. So far 96 countries and regions have promised to exchange taxation information automatically.”

China will be bringing this international tax development to the forefront during the G20 meetings being held in Hangzhou, China on September 4th and 5th. Other topics of discussion at the summit will be the broader use of the SDR through the issuance of bonds.

As it stands pre-summit, all G20 members are aligned on both the SDR mandate and the global tax system, as outlined in the article quoted above.  The levers of the transition are in constant motion as each individual piece of legislation is passed and enacted in the nations of the world.

When we also consider the imminent diversification of USD denominated foreign reserves (this process has already begun) we can further define the mechanisms which are moving into place.  As the role of the domestic US dollar changes in the international monetary system it can be expected that tax reform will take place back in America.  Such reform is already being widely discussed.

The role of the Federal Reserve will also change slightly as its monetary policy is directed more inward upon domestic matters as opposed to international ones.  The transformation which has begun will take years and decades to complete.

The ultimate completion will be realized when the SDR itself is transformed into the actual bancor world currency.  This process is similar to the European Currency Unit (a basket like the SDR) transforming into the actual euro currency.  The ECU to euro template may have been a trial run for the SDR to bancor which will take place down the road.

A world currency will require a process of world taxation.  But such processes are not developed overnight.  It takes years and decades of planning and passing domestic legislation to support the broader and more macro policies which will support the multilateral framework.

There is a lot of potential for research and further analysis on the international tax system which will unfold.  The general outline has been agreed upon but the finite details and agreements between nations will have to hashed out over negotiations and strategic positioning.

Digital currency will facilitate this taxation process and those who thought that Bitcoin and other such services would prevent such taxation plans will be surprised when they are used to tighten the anti-corruption plans of the multilateral institutions.  This will also facilitate the taxation of the digital services which thus far have been able to skirt domestic taxation laws.

You can be sure that our western media will not provide any meaningful coverage of the G20 meeting next week.  We will have to remain astute and observant to capture any information and data coming out of the summit.  When it comes to world taxation, I would consider this particular meeting to be the major seed.  Real changes will come further down the road.  – JC