Half of the profits of low-tax multinationals are not in countries known for their advantageous taxation, but in those with theoretically high rates, according to a study published on Tuesday by the OECD.
The cause is not questionable tax arrangements, but policy measures, such as tax credits for research or various tax advantages, granted to companies to attract their investments.
“Many jurisdictions typically considered to have high taxes offer various incentives that can lead to a significant reduction in tax rates,” explains the Organization for Economic Co-operation and Development (OECD).
Worldwide, about $2.14 trillion of multinational profits are taxed at rates of less than 15% each year. Of this sum, more than half, precisely 53%, is located in countries or territories whose average or theoretical tax rate is higher than 15%. In other words, these countries grant significant discounts on part of the profits obtained.
Even more remarkable, 10% of profits taxed at less than 5% are in countries with rates of 15% or more.
Countries with high official tax rates (above 15%) do not always apply them: more than a quarter of profits are effectively taxed at less than 15%. But the reverse is rarely true: in countries with rates below 5%, “almost all” profits are taxed at this real rate.
In total, of the 5.9 billion annual profits, 13% is taxed at less than 5% and 23% between 5% and 15%. Most multinational company profits are taxed between 15% and 30%.
According to the OECD, this is one of the first such precise analyzes of effective taxation by country, which should add nuance to the debate that traditionally pits countries with low taxes against those with high rates. Not taking into account effective rates “may lead to false estimates of the impact of various international reforms”, such as minimum corporate taxation, the OECD notes.
The overall sum of low-tax benefits could also be “clearly underestimated” by some of the current analyses, the report notes.
The study focuses on multinational companies with a turnover of more than 750 million euros and is based on data from 2017 to 2020.
In addition, the OECD notes that “a gap still exists between the place where profits are declared and the place where economic activities are carried out”, which “underlines the importance of implementing an international tax agreement”.