How Much Do We Really Know about Multinational Tax Avoidance and How Much Is it Really Worth? Comments Welcome!

Maya Forstater
July 12, 2015

At the Financing for Development conference in Addis Ababa this week, the issue of international cooperation to address ‘tax dodging’ and illicit flows will be higher up the agenda than ever before. Credit for this is due in no small part to the various non-governmental organizations that have built up public consciousness and pressure through sustained campaigns focused on the tax affairs of multinational companies.

In the attached paper, we find that the potential for governments to raise additional revenues by taxing multinational companies is limited by the actual levels of profit generated by foreign direct investment in each country; changes to effective tax rates may also have impacts on investment prospects.  Estimates of corporate tax dodging are often presented, mistaken, or repurposed in a way that exaggerates potential impacts - for example, large aggregate tax loss estimates are compared with aid revenues or healthcare funding gaps, implying that taxes raised in China, Brazil and South Africa might be available for public spending in Cambodia, Haiti and Malawi. Multi-year tax estimates are compared with annual  costs of nurses or teachers. In some cases larger estimates (‘trillions’) which relate to estimates of corruption, informal sector activities or offshore assets held by domestic citizens are mistakenly repurposed to represent complex tax planning practices of multinationals. Much-quoted figures such as ‘‘developing countries lose three times more to tax havens than they get from aid each year” and “‘60% of global trade takes place within multinationals” or “Zambia could have doubled its GDP” are not likely to hold up.

Taxes are a critical source of revenues for development and we appreciate these preliminary findings could be controversial. We welcome comments on our blog as we take the next steps towards a better understanding of tax avoidance and domestic resource mobilization.

One thing that's clear is that data are scarce, which in turn makes it hard to find robust and broadly-supported analyses. Instead, a popular narrative has emerged that the amounts involved are very significant in relation to the revenue base of the poorest countries, and that tackling tax dodging would generate enough funding to achieve ambitious development goals.  Recent estimates (such as by the IMF and UNCTAD) put the scale of potential revenues in the region of $100- $200 billion; mostly in the large, emerging economies--it is hard to square these figures with the perception that additional taxes collected will be in problem-solving amounts for the economies of the poorest countries.

We live in a world of imperfect information and we acknowledge those who have made the effort to get the conversation going.  We also understand that public statements are designed to get the attention of policymakers who are often occupied with other things.  It is our hope that the draft paper builds on the work already done to move towards better numbers. We grateful to the many tax experts from across research, advocacy and tax professions who have contributed so far to discussions and debates around this paper and to helped to clarify assumptions and misunderstandings, including our own. In particular, we would like to acknowledge our advisory group--Alan Carter (Her Majesty's Revenue and Customs), David McNair (ONE), Judith Freedman and Mike Devereux (Oxford Centre for Business Taxation), Marinke Van Riet (Publish What You Pay), Mike Truman (retired editor of Taxation magazine), Paddy Carter (Overseas Development Institute), Robert Palmer (Global Witness), Heather Self (Pinsent Masons), Wilson Prichard (International Centre for Tax and Development), Gawain Kripke (Oxfam America), Jonathan Glennie (Save the Children) and Jeremy Cape (Dentons). The advisory group members participated as individuals rather than as organizational representatives, and the paper is not a collective product. Nevertheless it has been strengthened by their inputs, and their willingness to engage openly to try to find areas of common understanding, and clarify the basis for disagreements.




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