Why Christine Lagarde Doesn’t Pay Tax

Christine Lagarde, the managing director of the International Monetary Fund, has rarely been out of the headlines this week – and on Tuesday a storm erupted on the Internet over the news that she pays no tax on her salary.The irony of the news coming in the same week that Lagarde faced a storm of criticism for speaking of "all those people in Greece who are trying to avoid tax" in an interview with The Guardian was not missed.

Christine Lagarde, managing director of the International Monetary Fund (IMF)
Bloomberg | Getty Images
Christine Lagarde, managing director of the International Monetary Fund (IMF)

Her salary is $467,940 (£298,675) a year plus $83,760 additional allowance – equivalent to around $630,000 if she were paying U.S. top rate income tax of 35 percent. This is a substantial sum, more than U.S. President Barack Obama or Secretary of State Hilary Clinton brings home in a year. Yet she could earn more if she were still able to juggle prestigious jobs in the private sector.

The storm has the distinct whiff of an imbroglio in the crockery.

First of all, by accepting a tax-free salary Lagarde is doing exactly the same as her predecessor in the job Dominique Strauss-Kahn - currently embroiled in insalubrious sex ring allegations in France – and indeed other United Nations employees. The Vienna convention states: "A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal." Protest against her, and you protest against thousands of UN employees throughout the years.

With one of the busiest schedules on the world stage, Lagarde may not have had quite enough time to contact tax officials in her native France or Washington, where she is now based, and volunteer a check.

The U.S. does have a scheme where you can volunteer to make a "gift" to the Treasury if you want – but there are few who take the opportunity to pay more tax. Author Stephen King and Warren Buffett are among the super-wealthy in the U.S. who have called on the government to tax them more, a plea which has so far fallen on deaf ears.

Lagarde, with her air of hyper-competence and faultless grooming, is doubtless a less heartstring-tugging figure than the average austerity-ridden Greek. But the problem of tax avoidance she described in Greece is systemic and structural, and acknowledged by many as a key cause of the country's current problems. Avoiding taxes which you are obliged by law to pay is not the same as taking on an extremely important job which happens to be tax-free.

Written by CNBC's Catherine Boyle