Canada and other G20 nations among biggest losers in large-scale tax abuse – but poor countries hardest hit

November 10, 2015

Advocacy in Canada

G20 countries – including Canada – are among the biggest losers when US multinationals avoid paying taxes where they do business.

This is the main finding of a new report on the global tax system, Still Broken, released by the Tax Justice Network, Oxfam, Global Alliance for Tax Justice and Public Services International today. Overall it is estimated that, in order to reduce their tax bills, US multinationals shifted between $500 and 700 billion – a quarter of their annual profits – out of the United States, Germany, the United Kingdom and elsewhere to a handful of countries including the Netherlands, Luxembourg, Ireland, Switzerland and Bermuda in 2012. In the same year, US multinational companies reported US$ 80 billion of profits in Bermuda – more than their profits reported in Japan, China, Germany and France combined.

Julie Delahanty, Oxfam Canada’s Executive Director, said: "Canada, along with a group of other rich and poor countries, loses huge sums of money each year because multinational companies are moving their money to countries where they don’t need to pay as much tax. Losing this tax revenue means public services in both rich and poor countries continue to be under-funded, which has a particularly harsh impact on women. While Canada is losing massive amounts of revenue, it is poor countries that continue to be hardest hit and that have the least say in how tax rules are determined."

The G20 Heads of State are expected to consider a package of measures they claim will address corporate tax avoidance at their annual meeting in Turkey on 15 and 16 November.

"Canada has a new Prime Minister who we hope will play a leadership role in Turkey to reform international tax rules and champion the equal participation of poor countries in these processes," said Delahanty.

Dennis Howlett, Vice-chair of the Global Alliance for Tax Justice and Executive Director of Canadians for Tax Fairness, said: "If big G20 economies with well-developed tax legislation and well-resourced tax authorities cannot put a stop to corporate tax abuse, what hope have poor countries with weaker, less well-resourced tax administrations? Poor countries need a seat at the table in negotiations on future tax reforms to ensure that they can claim tax revenues which are desperately needed to tackle poverty and inequality."

Twelve countries – the United States, Germany, Canada, China, Brazil, France, Mexico, India, UK, Italy, Spain and Australia – account for roughly 90 percent of all missing profits from US multinationals. For example, US multinationals make 65 percent of their sales, employ 66 percent of their staff and hold 71 percent of their assets in America but declare only 50 percent of their profits in the country. While G20 countries lose the largest amount of money, low income developing countries such as Honduras, the Philippines and Ecuador are hardest hit because corporate tax revenues comprise a higher proportion of their national income. It is estimated, for example, that Honduras could increase healthcare or education spending by 10-15 percent if the practice of profit shifting by US multinationals was stopped.

The Tax Justice Network, Oxfam, Global Alliance for Tax Justice and Public Services International are calling on the G20 to support further reforms to the global tax system that involve all countries on an equal footing. These reforms should effectively tackle harmful tax practices such as profit shifting and the use of corporate tax havens and should halt the race to the bottom in general corporate tax rates.

Notes to editors:

The briefing paper is available here: Still Broken: Governments must do more to fix the international corporate tax system
The full research paper Measuring misalignment: The location of US multinationals economic activity versus the location of their profits’, written by Alex Cobham and Petr Janský of Tax Justice Network, on which the briefing is based is available at: https://www.taxjustice.net/scaleBEPS/
A breakdown of comparing the proportion of profits which US multinationals declare in different countries with their economic activity is included in the annex of this report
The research focuses on US based multinationals because only the US requires companies to make this kind of data publically available.
If multinationals from other countries are factored in revenue losses would be far greater.

Canada and other G20 nations among biggest losers in large-scale tax abuse – but poor countries hardest hit

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