Empty corporate shells in tax havens undermine tax collection in advanced, emerging market, and developing economies

Tax avoidance is a big problem Governments are facing nowadays. “A large proportion of the world’s stock of foreign direct investment is “phantom” capital, designed to minimise companies’ tax liabilities rather than financing productive activity” claims Financial Times, introducing the results of a research on topic of tax avoidance.

The research, conducted by IMF and the University of Copenhagen, shows that a vast proportion of worldwide FDI passes through empty corporate shells” with “no real business activities”, and is a  mere vehicle for financial engineering. The aim is, as previously mentioned, minimising corporate financial taxes.

The study shows that phantom capital in percentage of total FDI has grown in the last decade. However, efforts have been done by governments and international organization on the topic. The European Commission has established new rules to eliminate the most common corporate tax avoidance practices.As of 1 January 2019, all Member States shall apply new legally binding anti-abuse measures that target the main forms of tax avoidance practiced by large multinationals”, we can read in the EU press release. Also, Google agreed today to pay 1 billion euros to French authorities to face the fiscal fraud that began four years ago; this may create a legal precedent for other large tech companies present in the country, Reuters said. 

Apparently, efforts made aren’t enough. But, as the research shows, impacts of the problem are enormous. We expect it to be the next big problem governments should face in the proper way.

To download the study by the IMF and the University of Copenhagen, go at the follwoing link: https://www.imf.org/external/pubs/ft/fandd/2019/09/the-rise-of-phantom-FDI-in-tax-havens-damgaard.htm

For further information on the topic, see the articles listed below: