Corporate tax havens are alive and kicking

Research by Tax Justice Network shows that the gap between where companies pay tax and where they really do their business is huge. In 2012, US multinationals alone shifted $500–700 billion, mostly to countries where these profits are not taxed, or taxed at very low rates. That is a huge amount – roughly a quarter of their worldwide profits. In other words, $1 out of every $4 of profits generated by these multinationals is not aligned with real economic activity.

The measures announced by the OECD in October are insufficient to stop all of this. TJN’s research shows that multinationals shift huge profits to a small group of tax havens and OECD countries with low-tax regimes. However, the OECD’s approach to address harmful tax regimes remains ineffective.

Many OECD countries as well as tax havens have simply replaced tax practices that had been found harmful with new regimes that do not fall foul of the OECD’s criteria. For example, Jersey and Isle of Man have replaced their preferential 0% rate for foreign investors with a 0% rate for all non-financial companies, including domestic firms.

According to the OECD, lowering the general corporate tax rate to zero is not a harmful tax practice. However, this position is becoming increasingly untenable, because the broken global tax system pits countries against each other in a race to the bottom on corporate taxation. It is broadly acknowledged that the agreed BEPS measures will probably only make this problem worse.

For the full story, read the 12-page briefing note that I wrote about it

For Dutch readers, you can read about the main findings, including the role of the Netherlands as a profit-shifting destination, in Trouw, FD and de Volkskrant.

For further details, see the underlying research paper and data annexes