Danish research from the University of Copenhagen has documented that 40 percent of surplus from multinational companies ends up in tax havens.
The research is produced by the two Danish PhD students, Thomas Tørsløv and Ludvig Wier, in collaboration with the noted French economist, Gabriel Zucman.
“Our research shows that about 40 percent of surplus generated by the multinational companies is moved every year to countries that have a low taxation,” Thomas Tørsløv, told Berlingske newspaper.
“It’s long been discussed how to calculate these streams of funds from multinational firms to tax havens. We’ve done something as dull as to look into national accounts based on new OECD figures and we’ve landed on a conservative estimate of 40 percent based on new calculation methods.”
Billions in Bermuda
The research looks into the amount of profit created by the private sector in countries, as well as how much wage is paid. These key figures give an idea about the relationship between a company’s activities in a country and its surplus in that country.
They can then see a significant different in surplus for local and multinational companies.
“There is less profit for multinational companies in non-tax havens, while multinational companies operating in tax havens have abnormally high profit compared to their wage costs. In short, the local ice cream vendor in Bermuda has a normal surplus, while Google has an abnormal surplus on the island,” said Tørsløv.
A specific example of this was seen in Ireland in 2015, where the difference between surplus and wages was at 800 percent in 2015 for multinational companies. Normally, the difference would be at 30-40 percent.
Billions out of EU
That’s the result of big international conglomerates such as Apple, Google, Nike and Starbucks shifting their surplus to tax haven nationals like Ireland or Bermuda to avoid paying much tax on the surplus. Google Alphabet, a holding company for Google, registered a surplus of 19.2 billion US dollars in 2016 – and that’s without any noteworthy activities or employees on the island.
It is estimated that these tax moves by the big firms cost the EU some 450 billion kroner every year – 20 percent of company tax income. In fact, since 1985 the average global company tax percentage has fallen from 49 to 24 percent as countries lower taxes to remain competitive.
”It’s a clear picture: The companies move profit without moving activities. That’s why we call it ‘paper profits’ as the surplus only exists in Excel and is simply shifted around to where it’s most advantageous,” said Tørsløv.
The tax haven issue has risen into the spotlight in recent years thanks to the Panama Papers and Paradise Papers leaks.
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