by LUDWIG WIER & GABRIEL ZUCMAN
About a decade ago, the world’s biggest economies agreed to crack down on multinational corporations’ abusive use of tax havens. This resulted in a 15-point action plan that aimed to curb practices that shielded a large chunk of corporate profits from tax authorities.
But, according to our estimates, it hasn’t worked. Instead of reining in the use of tax havens – countries such as the Bahamas and Cayman Islands with very low or no effective tax rates – the problem has only gotten worse.
By our reckoning, corporations shifted nearly US$1 trillion in profits earned outside of their home countries to tax havens in 2019, up from $616 billion in 2015, the year before the global tax haven plan was implemented by the group of 20 leading economies, also known as the G-20.
In a new study, we measured the excessive profits reported in tax havens that cannot be explained by ordinary economic activity such as employees, factories and research in that country. Our findings – which you can explore in more detail along with the data and an interactive map in our public database – show a striking pattern of artificial shifting of paper profits to tax havens by corporations, which has been relentless since the 1980s.
Global crackdown
The current effort to curb the legal corporate practice of using tax havens to avoid paying taxes began in June 2012, when world leaders at the G-20 meeting in Los Cabos, Mexico, agreed on the need to do something.
The Organization for Economic Cooperation and Development, a group of 37 democracies with market-based economies, developed a plan that consisted of 15 tangible actions it believed would significantly limit abusive corporate tax practices. These included creating a single set of international tax rules and cracking down on harmful tax practices.
In 2015, the G-20 adopted the plan officially, and implementation began across the world the following year.
In addition, following leaks like the Panama Papers and Paradise Papers – which shed light on dodgy corporate tax practices – public outrage led governments in the U.S. and Europe to initiate their own efforts to lower the incentive to shift profits to tax havens.
Profit-shifting soars
The Conversation for more