Paris, France – Tax havens are blamed for lower public revenues elsewhere as they lure away multinational firms but a study published on Tuesday showed that tax breaks in high-rate countries are also heavily exploited.
Half the profits booked by multinationals benefiting from low tax rates were from countries that have high rates but offer various tax breaks to attract investments, the study by the Organization for Economic Co-operation and Development (OECD) found.
“Many jurisdictions typically considered (to be) ‘high tax’ offer various incentives which can lead to substantially reduced tax rates,” said the report.
The study found that US$2.1 trillion in profits were booked by multinationals with an effective tax rate of below 15 percent.
But slightly over half of that was earned in countries that have statutory or average effective tax rates above 15 percent.
The OECD, along with the G20, has spearheaded a reform of the global corporate tax system to introduce a minimum global rate of 15 percent to combat efforts by firms to shift profits to countries with low rates.
The debate has usually been framed in terms of countries with high tax rates versus those with lower rates, but the OECD said the study shows those with higher rates stand to gain from a minimum rate.
“The relevance of low-taxed profit in high tax jurisdictions implies that domestic minimum taxes could raise considerable revenue, not only in jurisdictions with low average rates, but also in jurisdictions with average rates above the minimum tax,” it said.
