Tax Avoidance Costing U.S. $189 Billion: Tax Justice Network

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By Ben Stupples

Multinational companies’ tax avoidance is costing the U.S. around $188.8 billion a year in lost revenue—more than a third of the amount lost worldwide, according to the global advocacy group Tax Justice Network.

Governments are losing a total of $500 billion in tax revenue a year from companies that shift profits to low-tax jurisdictions, according to estimates published March 22 by the Tax Justice Network, a coalition of economic researchers and activists who aim to combat tax avoidance and evasion.

Appearing in a March 22 United Nations University study on international corporation tax, the figures come as countries worldwide adapt to measures from the OECD’s 15-action plan to combat global corporate avoidance, such as reporting tax and financial data on a country-by-country basis.

Tax Scandals

The issue of profit shifting has recently faced international scrutiny due to tax scandals, including LuxLeaks and the Panama Papers, where individuals and companies deliberately avoided tax.

The latest figures identify the U.S. as the country with the highest estimated losses through tax avoidance, although $188.8 billion represents just 1.1 percent of the country’s gross domestic product. African countries like Chad and Guiana suffer most, meanwhile, with the study showing them losing almost 7 percent of their gross domestic product through multinational companies’ aggressive tax planning.

U.S. Tax Reform

In addition to coinciding with changes that countries are adopting from the Organization for Economic Cooperation and Development’s base erosion and profit shifting, or BEPS, project against tax avoidance, the figures come at a time when the U.S. faces a federal tax system overhaul from the Republican Party.

The proposed reform, which allows full deduction of capital expenditures, a 20 percent tax rate for corporations and border adjustments, has been branded as a destination-based cash flow tax.

Yet the plans don’t factor in the amount that the U.S. is losing each year in tax avoidance from multinational companies, according to U.K.-based Tax Justice Network chief executive officer Alex Cobham, who carried out the analysis for the figures with Petr Jansky of Prague’s Charles University.

The Republican Party’s tax reform would “lock in the current avoidance and not try to get back the revenues that have been lost from it,” he told Bloomberg BNA March 22.

2016 IMF Study

Cobham and Janky based their analysis on a 2016 report from the International Monetary Fund, which estimated annual losses from companies’ tax avoidance at $600 billion. For their revised analysis, Cobham and Janky used a more accurate data set, according to a March 22 blog post by Cobham.

Both the IMF’s and the March 22 figures beat the $100 billion to $240 billion estimate of similar tax losses from the OECD as part of its BEPS project.

“We don’t think the methodology is perfect; nor of course, the estimates precisely accurate,” Cobham said in the March 22 post. “But we hope that this is a valuable step in the ongoing process of assessing more closely, and responding more effectively, to this first-order global policy problem.”

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj in London at psukhraj@bna.com

For More Information

A spreadsheet with the March 22 data can be found at http://src.bna.com/neZ.

A map showing the March 22 data can be found at http://src.bna.com/ne3.

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