UNCTAD: multinational tax avoidance costs developing countries $100 billion+

Exposure to offshore hubs. Click to enlarge.

Exposure to offshore hubs. Click to enlarge.

The UN Conference on Trade and Development (UNCTAD) has just published a major new study on corporate tax in developing countries, which contains a wealth of new information analysis as well as some important headline numbers: notably that developing countries lost around $100 billion per year in revenues due to tax avoidance by multinational enterprises (MNEs), and as much as $300 billion in total lost development finance.

In more detail:

  • MNE foreign affiliates contribute an estimated $730 billion annually to government budgets in developing countries, of which corporate income taxes account for some $220 billion. These contributions represent on average, around 10% of total government revenues, compared to around 5 percent on average in developed countries. In Africa, the share is 14 percent.
  • An estimated $100 billion of annual tax revenue losses for developing countries is related to inward investment stocks directly linked to offshore hubs. The estimated tax losses represent around a third of the potential total – or towards half of current MNE corporate income taxes. Adding up both lost tax revenues and with the reinvested earnings that are lost as profits are shifted away from the developing country yields a total ‘development finance loss’ in the range of $250 – $300 billion (see the note below for more details).  
  • Some 30% of cross-border corporate investment stocks – FDI, plus investments through Special Purpose Entities (SPEs) – have been routed through offshore hubs.
  • A 10 percent increase in the use of ‘offshore hubs’ for inward investment is associated, on average, with a fall of over one percent in reported taxable returns. 
  • Increasing international efforts to tackle tax avoidance practices have managed to reduce the share of offshore investments in developed countries, but exposure of developing economies is still on the rise.

As mentioned, the leakage of development resources is not limited to the loss of domestic tax revenues. Profit-shifting out of developing countries also affects their overall GDP (as it reduces the profit component of value-added, which is what GDP measures). And, as companies shift profits away from the country that is the recipient of the inward investment, they may further undermine development opportunities by reducing the reinvestment of those profits for productive purposes. Applying an average reinvestment rate of 50% to UNCTAD’s estimate of $330 – $450 billion in (after-tax) profit shifting, would suggest a loss in reinvested earnings in the range of $165- $225 billion.

Adding up the tax revenue losses and these lost ‘reinvested earnings’, the total leakage of development financing resources would then be in the order of $250 – $300 billion annually.

Alex Cobham has published a more detailed summary of the report.

UNCTAD has also used a relatively new tax database called the Government Revenue Dataset from the International Centre for Tax and Development (ICTD), which TJN’s Cobham and others have been working with, to provide an approximate baseline for the corporate and other tax contribution of MNEs in developing countries.

The new UNCTAD report is called “a working paper for review and feedback,” so be sure of more such reports and data to come.

One for our permanent reports page.


Related Posts

UN must defend target to curtail multinational companies’ tax abuse

Photo by Luca Santori, Creative Commons LicenseThe Tax Justice Network, The Independent Commission for the Reform of International Corporate Taxation, and the Global Alliance for Tax Justice call on the UN Secretary General to make sure the commitment to action on tax abuses by multinational companies remains part of the new UN Sustainable Development Goals.

READ MORE →

The BVI: Responsible for worldwide tax losses of $37.5 billion a year

BVI report blogAn extraordinary report by consultants Capital Economics, for BVI Finance, claims that the British Virgin Islands are responsible for $1.5 trillion of assets invested around the world, and that these result in 2.2 million jobs and $15 billion in tax revenue. A better approximation would be that the BVI imposes global tax losses of $37.5 […]

READ MORE →

Event: Making Tax Work for Women in the UK and Globally

Invitation_ Tax and Gender eventOn Wednesday 28th June 2017 at 16.30 our very own Liz Nelson will be speaking at an event in London that aims to bring together gender and tax justice advocates to highlight the need for coherent and gender-responsive fiscal policies to safeguard the rights of women and girls both in the UK and globally. The […]

READ MORE →

Historic event on women, human rights and tax justice in Bogota

BogotaLast week civil society organisations, researchers, labour union activists and policy makers met in Bogota, Colombia to explore how tax justice issues can ensure governments, multinational corporations and others meet their obligations to women in order to secure their full range of human rights. The Women’s Rights and Tax Justice conference opened with a conversation […]

READ MORE →

The Offshore Wrapper: the Panama Papers, one year on

Photos from the Protest outside PwC 1 Embankment Place, part of the Global week of action for tax justiceWelcome to the Offshore Wrapper – your weekly update from TJN.  Happy Paniversary! This week it’s been one year since the Panama Papers were leaked, and a number of organisations around the world have been marking the occasion though the global week of action for tax justice. In London, activists from the TJN and the […]

READ MORE →

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to Top