The United Nations Conference on Trade and Development (UNCTAD) on March 26 released a draft report that concludes that developing countries are losing about $100 billion every year from MNE tax avoidance through use of offshore hubs.
“Some 30% of cross-border corporate investment stocks (FDI, plus investments through special purpose entities) have been routed through conduit countries before reaching their destination as productive assets,” the report notes. The report states that the primary reason for use of offshore hubs is tax avoidance, particularly intangibles-based transfer pricing schemes and financing schemes.
UNCTAD based its conclusions on analysis of 42 hubs that are considered to be either tax havens or to offer SPEs or other entities that facilitate transient investment.
The report also estimated the contribution of MNE affiliates to developing countries as $730 billion annually, representing about 10 percent of total government revenue. Payments for royalties on natural resources, tariffs, payroll taxes and social contributions, and other types of taxes and levies are double payments of corporate income taxes, the report said.
The paper also offers a set of guidelines for tax and investment policies that acknowledge the synergies between investment policy and initiatives to counter tax avoidance.
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