The UK’s anti-corruption two-step: curtailing abuse of courts while underfunding anti-kleptocracy police
PROPHETS OF PROFITS
Many of you will know the work of Gabriel Zucman, at the University of California, Berkeley, in which he tries to pierce the layers of secrecy around offshore finance and see who really owns what. I was really excited to see an update to the ongoing project Missing Profits of Nations, which he and two Danish economists have been working on for a few years.
In this new paper, they analyze the profitability of different companies to determine that fully 36% of multinationals’ profits are shifted to tax havens, in a way that really highlights the importance of achieving a global minimum tax rate.
- “We analyze how the location of corporate profits would change if shifted profits were reallocated to their source countries. Domestic profits would increase by about 20% in high-tax European Union countries, 10% in the United States, and 5% in developing countries, while they would fall by 55% in tax havens,” they write.
- “We establish that U.S. multinationals shift comparatively more profits: in 2015, U.S. firms shifted more than half of their multinational profits, as opposed to about a quarter for other multinationals.”
It’s worth reading the paper (or its summary at least), to appreciate the rigor of their technique. And then stop to think what governments desperately trying to keep the lights on, keep hospitals open, and support Ukraine’s military could do with all those unpaid taxes.
As for the global tax deal, which aims to impose a minimum rate of 15% on major multinational companies, some countries are continuing as if it will still go ahead (for example, the U.K.), but the picture is very far from rosy. It is pretty clear that the situation Zucman and his co-authors have exposed is intolerable, and governments will therefore not tolerate it. If the multilateral effort does end up falling apart, countries will start taxing tech giants themselves on a unilateral basis, and things will get incoherent extremely quickly.