Corporate profits

This chart shows where more and more corporate profits are going: tax havens

Unpublished analysis released on Thursday shows how the amount of corporate profits diverted to tax havens has skyrocketed in recent years, with nearly $1 trillion in global profits being stored in places where corporate giants have not to pay taxes.

The United Nations University World Institute for Development Economics Research (UNU-WIDER) studied corporate profits and profit transfers between 1975 and 2019, discovery that the diversion of massive profits is a “relatively new phenomenon”.

In the 1970s, around 2% of corporate profits were transferred to tax havens such as the Bahamas, Anguilla and Panama. By 2019, this amount had risen to 40%, as the use of corporate tax havens has increased sharply over the past decade.

“Profit shifting has grown unabated,” tweeted Ludvig Wier, co-author of the study and head of the secretariat of the Danish Ministry of Finance.

Shifting profits to corporate tax havens contributed to the loss of 10% of corporate tax revenue, estimate the authors, including Wier and French economist Gabriel Zucman.

“Of course, if there had been no profit shifting, then countries might have chosen other policy paths, for example some might have been less likely to reduce their tax rates on societies and engage in the ‘race to the bottom’,” the study says. . “It does show, however, that revenue losses caused by profit shifting have been a quantitatively important aspect of the decline in effective corporate tax rates around the world since the 1970s.”

The researchers based the study on their analysis of which countries lost the most corporate tax revenue each year. Sixteen percent of tax revenue is lost in tax havens in the United States every year, according this analysis, while 32% are lost in the UK, 22% in France and 29% in Germany.

“US multinationals transfer comparatively more profits (about 60% of their profits abroad) than multinationals in other countries (40% for the world on average),” write the authors. “Shareholders of US multinationals thus emerge as the main winners of global profit shifting.”

The authors noted that the significant shift of corporate profits to tax havens came after “major policy initiatives by the Organization for Economic Co-operation and Development (OECD)” and the 2017 tax reform package presented to the US Congress by the Republican Party, which included measures to ostensibly reduce corporate tax avoidance.

“The finding suggests there remains an urgent need for additional policy initiatives to significantly reduce global profit shifting, such as the implementation of the Global Minimum Corporate Tax that more than 130 countries have signed up to. in 2021, but now remains in limbo as it is stuck in the EU and the US,” Wier said.

The Global Minimum Corporate Tax would ensure that all companies around the world pay a minimum tax of 15% and would charge higher taxes for large companies in countries where they have customers.

“The United Nations Sustainable Development Goals make it clear that to reduce poverty and reduce global inequality, illicit financial flows such as profit shifting must decrease,” Wier said.