India and tax havens: new Christian Aid report

Hot on the heels of our "No More Shifty Business" co-signed report responding to the OECD's major new "BEPS" international tax initiatives, Christian Aid have published a new report entitled Multinational Corporations and the Profit-Shifting Lure of Tax Havens, which provides useful new evidence on how tax havens affect developing countries.

Using the Orbis database, they analysed the accounts of over 1,500 MNCs (Multinational Corporations) operating in India, home to 25% of world’s undernourished people, and found out that those MNCs with links to tax havens paid nearly a third less in taxes per unit of profit than those with no tax haven links. More specifically:

"On the basis of our sample of MNCs operating in India, we find that MNCs with tax haven connections:
•    report 1.5 per cent less profits
•    pay 17.4 per cent less in taxes per unit of asset
•    pay 30.3 per cent less in taxes per unit of profit
•    have 11.4 per cent higher debt ratios than MNCs with no connection to tax havens."

These conclusions provide useful empirical confirmation of what many people already know: tax havens help multinational corporations dodge taxes in developing countries, undermining development. Christian Aid continue:

"Our findings strongly suggest that MNCs with connections to tax havens engage in profit shifting more intensively than those MNCs with no tax haven links. This confirms the notion that when corporations have tax haven links they face higher incentives (because of the low tax rates in tax havens) and opportunities (because of the secrecy provisions tax havens offer) to shift income than corporations that do not have any tax haven links.

Profit shifting by MNCs can significantly reduce the tax revenues raised by governments. In countries where taxes raised as a percentage of GDP are very low, the revenue foregone can seriously undermine efforts to tackle poverty and invest in human development."

And their solution? Among other things, unitary taxation with profit apportionment.