Multinationals avoid $500 billion in tax every year
Tax Justice Network reveal varying degree of tax avoidance across the world
New estimates revealed by the Tax Justice Network (TJN) in March show that multinational corporations are using profit shifting to avoid around $500 billion in tax every year.
Although this figure is lower than the $600 billion recently estimated by the International Monetary Fund, the TJN study shows, for the first time, the varying intensity of tax avoidance across the world by providing a country-by-country breakdown of tax losses as a percentage of total tax revenue.
What is profit shifting?
Profit shifting is the process by which multinational companies move their profits from subsidiaries in countries with higher tax rates into jurisdictions with low (or zero) tax rates.
Although those original subsidiaries may be responsible for most of the company’s real economic activity, multinational corporations use financial transactions between their own subsidiaries to ensure that the fruits of that activity are registered in the most ‘tax-favourable’ location.
Companies pursuing these kinds of practices are almost constantly in the news, from Apple and Amazon (which have become bywords for tax avoidance) to the LuxLeaks scandal, in which PriceWaterhouseCoopers and the Grand Duchy of Luxembourg were found to be assisting hundreds of companies (including Dyson, Pepsi, Ikea and Heinz) in elaborately organising themselves to achieve tax advantages.
Country by country reporting
Tax justice campaigners have known for years that international tax avoidance disproportionately affects developing countries. By including country-specific tax revenue data in their study, the TJN reveals the intensity of these effects.
If you only look at the size of the tax losses, the poorest victim appears to be the United States, with over $188 billion lost to tax avoidance, which is about 1% of the country’s GDP and 5.8% of its total tax revenue. Chad appears to lose a lot less by comparison – under $1bn – but this ‘small’ figure amounts to nearly 7% of the country’s GDP and 106% of its total tax revenue.
TJN’s findings indicate that the greatest intensity of losses occurs in low- and lower middle-income countries, and across sub-Saharan Africa, Latin America and the Caribbean, and South Asia.
We currently have a campaign to boycott Amazon over its systematic tax avoidance. See our Boycott Amazon page for more information.