ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Economy

Tax avoidance drives nearly 40% of global FDI: report

'Phantom' investment flows into Netherlands, Luxembourg and other tax havens

The central train station in Amsterdam: the Netherlands is one of the world's top destinations for "phantom" direct investment, a new study finds.   © Reuters

TOKYO -- Around $15 trillion flowed into tax havens in 2017 under the guise of genuine foreign direct investment, amounting to nearly 40% of global FDI that year, according to a new report co-written by the International Monetary Fund.

The research by the IMF and the University of Copenhagen gives an indication of the scale at which multinational companies seek to minimize their tax burdens, and it argues for greater international cooperation to ensure proper taxation.

"Phantom" FDI is channeled through shell companies known as special-purpose entities that have no real business activities, according to the report.

Such flows grew by roughly half over the five years to 2017, rising to 38% of total FDI from about 31% in 2010, the study finds.

Luxembourg and the Netherlands took in nearly half of phantom FDI. They are part of a group of 10 low-tax jurisdictions also including Hong Kong, Ireland and the Cayman Islands that serve as destinations for more than 85% of all these flows.

Luxembourg's roughly $4 trillion in phantom FDI inflows alone are equivalent to annual direct investment in the U.S., according to the report.

"Even if the empty corporate shells have no or few employees in the host economy and do not pay corporate taxes, they still contribute to the local economy" by using local financial services and paying fees, write the authors Jannick Damgaard, Thomas Elkjaer, and Niels Johannesen.

The Organization for Economic Cooperation and Development is drafting new international rules to block tax avoidance, but some countries are taking their own initiative. The U.K. will impose a digital tax on technology companies like Google, Amazon.com and Facebook next year.

"No matter which road policymakers choose, one fact remains clear: international cooperation is the key to dealing with taxation in today's globalized economic environment," write the authors of the IMF report.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media