I reproduce this from the TJN blog as I think it important:
New figures published today by the Tax Justice Network provide a country-level breakdown of the estimated tax losses to profit shifting by multinational companies. Applying a methodology developed by researchers at the International Monetary Fund to an improved dataset, the results indicate global losses of around $500 billion a year. The figures appear in a study published today by the United Nations University World Institute for Development Economics Research (UNU-WIDER, in Helsinki).
While this global total is more cautious than the $600 billion estimate of the IMF researchers, the distribution is also different. Losses are now estimated to be even more intense in lower-income countries in relation to GDP and as a proportion of total tax revenues. In addition, today's estimates include the full country breakdown.
Profit shifting is the process whereby companies move profits from their subsidiaries in higher tax countries, where the real economic activity takes place, to other subsidiaries in ‘tax havens'. This is typically achieved by the multinational company setting up internal trades which exploit international tax rules to move taxable profits from one jurisdiction to another.
Profit shifting has been a big focus of international attention since scandals at companies like Apple and Amazon revealed the scale of distortions — and the systemic nature of avoidance schemes marketed by big 4 accounting firms was then laid bare in the ‘LuxLeaks' revelations.
Tax Justice Network Chief Executive, Alex Cobham and Petr Janský of Charles University in Prague, carried out the analysis which recreates the methodology of a study published by researchers at the International Monetary Fund in 2016. Cobham and Janský replicate the IMF analysis, and then repeat it using a more robust source of national tax revenue data.
The data showed that whilst the largest losses occurred in rich economies such as the United States, lower-income countries were the biggest victims of profit shifting. Some countries, such as Argentina (4.42%) lost a significant proportion of their GDP to profit shifting. In Chad, the estimated losses to profit shifting were larger than all of the (non-resource) taxes collected in the country that year. In Pakistan the losses were 40% of tax revenues. While any estimates of this deliberately hidden phenomenon are necessarily uncertain, the order of magnitude indicates that the economic development of countries may in some cases be significantly undermined by the activities of multinational companies.
The calculated losses to individual countries can be seen in this interactive global map:
A spreadsheet with the data can be found here: https://docs.google.com/spreadsheets/d/1r7jdXvQ1NaGjUUkH1afniE3xvTyCu7NC8BZWZjkkQ-k/edit?usp=sharing
The study was published as part of the WIDER working paper series. A link to the full study can be found here: https://www.wider.unu.edu/node/74539
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Slightly surprised by these figures. The world GDP in 2016 was estimated by the IMF at $75.2 trillion. The UK GDP at $2.65 trillion. A recent report by McKinsey & Co suggested that global corporate after-tax operating profits were in the region of US$8 trillion. The UK has approximately 1% of the world’s population and 3.5% of the world’s GDP. The UK proportion of those profits is therefore $280 billion. Let’s be generous and suppose that half of that has already been properly taxed and the other half has magically vanished to some more favourable tax haven. In that case the corporation tax rate of 20% then that fraction of $80 billion is about £28 billion.
Google has reported revenues in the UK of $9 billion for the last year. I don’t believe they paid a great deal in tax and they don’t have a very substantial operation in the UK so a fair part of this should be untaxed profit. However the spreadsheet linked on this post says the UK estimated tax loss is in the region of $1 billion. Simply on the basis of Google’s profit and revenue it seems unlikely that that is correct.
What am I missing/getting wrong?
See: http://outsidethebubble.net/2016/10/20/fair-taxation-on-corporate-profits-2/
You are getting that this is struct liability shifting
I think the method used would find it very hard to find revenues that miss the country altogether – as much of Google’s do
BUT I have not thought this issue is of anything like the scale you suggest internationally for some time
The big losses are domestic and amongst SMEs in my opinion – and I said so in 2014 and no one seemed to notice
Fine. However surely if the amounts involved according to this study are so small does this not make the Alternative Minimum Corporation Tax proposals rather unproductive?
I think it is important to try to get these numbers right. Surely this problem (shifting profits overseas to avoid taxation in one jurisdiction) can be quantified. Companies have to be fairly large-scale multinational operations for this to work so again I’m not convinced SMEs are likely to dominate it. One could at least start with the biggest companies (Google, Apple, big Pharma, Amazon et cetera) as a starting point. The extrapolation to smaller companies would be tricky but is important. The potential for AMCT to contribute to the Treasury’s coffers could be critical for an anti-austerity government to help to make the books balance.
I know that a true anti-austerity government would be happy to borrow much more but the matter of being elected means that such a government must at least make a pretence at being interested in balancing the books and a successful AMCT would make it very much more attractive.
Over the world at large I wouldn’t suggest that it’s unproductive
It may not be even in the UK
Remember we may have profits being shifted in and out in our case…