New OECD Data Sheds Light on Multinationals Profit-Shifting to Cut Taxes

July 8, 2020 Updated: July 8, 2020

PARIS—New country-by-country data on big multinational companies’ tax reporting indicates they tend to book profits in low tax financial hubs rather than where they really do much of their business, the Organisation for Economic Cooperation and Development (OECD) said on Wednesday.

The OECD said the data confirmed economists and tax experts long-held suspicions that multinationals were legally exploiting loopholes in international tax rules to park profits in low tax jurisdictions.

Multinationals with group revenues of at least $750 million have been required since 2016 to report income, profit, and taxes for the countries in which they operate under an international push to shed light on the issue led by the OECD.

First insights from the trove of anonymized and aggregated data reveal a “misalignment between the location where profits are reported and the location where economic activities occur,” the OECD said.

On average multinationals’ operations in investment hubs report 25 percent of group profits but only 4 percent of employees and 11 percent of tangible assets.

The median value of revenue per employee in jurisdictions with no corporate income tax was $1.4 million, the report said.

Meanwhile, the same value in places where corporate income is taxed at less than 20 percent was $240,000 and $370,000 where the tax rate is more than 20 percent.

The OECD said the findings made it all the more important to complete negotiations among nearly 140 countries on a global minimum corporate tax rate, which are due to be wrapped up this year.

By Leigh Thomas