According to the report, published this week, as much as $300 billion development finance was lost.
The report notes that multinational enterprises contribute an estimated $730 billion annually to government budgets in developing countries, part of that is corporate tax amounting to some $220 billion.
“These contributions represent on average, around 10% of total government revenues, compared to around 5 percent on average in developed countries. In Africa, the share is 14 percent,” the report says.
The report indicates that an estimated $100 billion of annual tax revenue losses for developing countries is related to inward investment stocks directly linked to offshore hubs.
The estimated tax losses, it says, represent around a third of the potential total – or towards half of current multinational enterprise corporate income taxes.
“Adding up both lost tax revenues and with the reinvested earnings that are lost as profits are shifted away from the developing country yields a total ‘development finance loss’ in the range of $250 – $300 billion,” the report suggests.
It notes that some 30 percent of cross-border corporate investment stocks – FDI, plus investments through Special Purpose Entities (SPEs) – have been routed through offshore hubs.
“A 10 percent increase in the use of ‘offshore hubs’ for inward investment is associated, on average, with a fall of over one percent in reported taxable returns,” it states.
It adds that increasing international efforts to tackle tax avoidance practices have managed to reduce the share of offshore investments in developed countries, but exposure of developing economies is still on the rise.
By Emmanuel K. Dogbevi