Wednesday, June 20, 2018

How tax havens turn economic statistics into nonsense

accountability transparency offshore tax evasion havens money laundering corruption finance business politics

It’s no secret that tax havens help launder money, hide what powerful people own, and let giant corporations pay negligible taxes. One thing that’s not often mentioned is how they skew a lot of economic data.

A recent IMF article reveals a perfect example: “A stunning $12 trillion—almost 40% of all foreign direct investment positions globally—is completely artificial,” write economists Jannick Damgaard, Thomas Elkjaer, and Niels Johannesen. These are investments with no substance, where the money “invested” quickly moves on to another jurisdiction.

What’s really going on with that cash? The secretive nature of these transactions means it’s hard to say for sure. But Elkjaer, a senior IMF economist, says it’s likely that most of the payments have little purpose other than hiding the owner’s identity and avoiding tax or domestic regulation. That can mean a corporate giant moves money from shell companies in one country to another in order to shrink their tax bills. Or a plutocrat shifting cash around secretive islands to obscure the trail of what they actually own.

That leads to some pretty crazy statistics. In India, China, and Brazil, 50% to 90% of outward FDI “goes through a foreign entity with no economic substance,” the authors write. In the US and UK, that figure is 50% to 60%.  (more...)

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