Jon Worth Blogger, Writer, Speaker, Trainer

Scandal! Christine Lagarde, managing director of the IMF, pays no tax! How can this be when she’s lecturing more Greeks to pay tax!?! Story from The Guardian here.

Sony Kapoor, so often the voice of reason throughout the Eurozone crisis on Twitter, stated “IMF staff don’t, period!” prompting all kinds of follow up on Twitter, bringing EU officials into the mix too.

For me there are two issues here: the first, and frivolous one, concerns Lagarde herself. IMF (and indeed UN) rules mean officials there do not pay tax in the country in which they are resident, and so be it. Looks odd, but those are the rules. She is not paying tax because she does not have to. The second issue is to why is this the case and – importantly – what should be done about it.

Let’s start first of all at the national level.

If you’re a national civil servant, working in a regular ministry in France or the UK or anywhere else you pay tax like anyone else. You are an employee of the state, but you pay tax like anyone else. So when I worked for the Department of Trade and Industry (DTI) in the UK (as was, now it’s BIS) I earned in the region of £28000 a year, and took home a net salary of about £21400 or £1780/month. This leads to two issues: practical and ethical. Essentially the state was paying DTI cash, a portion of which was then returned to HM Revenue and Customs. At an administrative, practical level is this sensible? Would it not be simpler to just pay me £21400? I don’t know. But at an ethical level it is surely better I see the gross and net payments. As a taxpayer I can have some grip on how much I am contributing to the collective endeavours of the state, and I have something I can compare with friends working outside the public administration. So – on balance – civil servants paying national taxation, rather than just getting a net salary, seems to make sense.

Then try to apply this internationally. I’m going to try to do this on the basis of the principles of taxation, not Article 34 of the Vienna convention.

Where should Lagarde actually pay tax? She is resident in Washington D.C., as most of the IMF’s staff are. So it would make sense that taxation relating to her residence there – local tax for maintenance of the streets, refuse collection etc. should be paid. Taxation relating to her residence there, in so far as this impacts her everyday life, should also be levied – for hospitals, schools and police for example.

But then it gets a bit more murky. What about social security? As a posted official she would not be entitled to unemployment assistance in the USA in the event of the termination of her contract. Likewise she would not be likely to reside in the USA after retirement, so it could be argued that pensions contributions – in so far as these are managed by a state – are superfluous.

Add onto that the language complexities of international posting, most notable in for the children of EU officials in Brussels, who can send their children to Commission-run European schools rather than to local state funded Belgian ones. Should these officials then contribute to the education budget of the Belgian state? (in reality these schools are paid for from the Commission’s community tax – see bottom of this page). In Brussels there is the additional complexity that institutions do not pay local tax on office space, a matter that caused controversy when the Commission moved into the Madou Tower, located in one of the poorest communes in Belgium. Undoubtedly there will be similar complexities in Washington D.C., Geneva and anywhere else with major international institutions.

There is also the additional complexity of the amount of time a person working for an international organisation is posted there. Within the EU a worker in the private sector can be ‘posted’ for up to two years before having to sign in fully with the country where they are temporarily resident. Should there be an equivalent for officials posted to international organisations, where the length of service determines where taxation should be levied?

Right then, so what is the answer? I’m afraid I do not think there is a simple one. It is clear that Lagarde and people in the same situation as her (including US Embassy officials in London!) should pay taxes where they are resident because they call on the services of that place, and it is important that all citizens contribute. But exactly how much and for what purposes is a much harder issue to determine for the multitude of reasons I have explained above.

That’s of course all a lot more complex than having a quick rant at Lagarde!