Multinational corporations: According to an OECD study, not all tax havens reveal their names

Half of the profits of low-tax multinationals are made not in countries known for favorable taxation, but in those that theoretically have high tax rates, according to a study published Tuesday by the OECD.

The cause is not questionable tax regulations, but rather political measures, such as research credits or various tax advantages given to companies to attract their investments.

“Many jurisdictions that are typically thought of as having high taxes offer various incentives that can result in significantly lower tax rates,” explains the Organization for Economic Co-operation and Development (OECD).

Globally, around $2.14 trillion in multinational profits are taxed annually at rates of less than 15%. More than half of this amount, exactly 53%, lies in countries or territories whose average or theoretical tax rate is higher than 15%. That is, these countries provide significant discounts on part of the profits generated.

Even more strikingly, 10% of profits taxed at less than 5% are located 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 actually taxed at less than 15%. However, the opposite is rarely the case: in countries with rates lower than 5%, “almost all” profits are taxed at this real rate.

Overall, of the 5,900 billion annual profits, 13% are taxed at less than 5% and 23% between 5% and 15%. The majority of multinational companies’ profits are taxed at 15 to 30 percent.

According to the OECD, this is one of the first such precise analyzes of effective taxation by country, which is expected to add nuance to the debate that traditionally pits low-tax countries against high-tax countries. Failure to take effective tax rates into account “can lead to incorrect estimates of the impact of various international reforms,” such as minimum corporate taxation, the OECD notes.

The global sum of low-taxed profits could also be “significantly underestimated” by some current analyses, the report says.

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 “there is still a gap between the place of declaration of profits and the place of carrying out economic activities,” which “underlines the importance of implementing an international tax treaty.”