VoxDev Development Economics
S6 Ep13: Profit shifting hits developing countries hardest
Apr 2, 2025
Ludvig Wier, author of a pivotal International Growth Centre report and a key figure in the Danish Ministry of Foreign Affairs, delves into the complex world of corporate profit shifting. He reveals how multinational corporations exploit low-tax jurisdictions, severely impacting tax revenues in developing countries. Wier discusses AI's potential to aid overwhelmed tax offices and highlights global initiatives aimed at diminishing the allure of tax havens. The conversation uncovers the vast disparities in tax compliance and the urgent need for equitable tax solutions.
24:26
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Quick takeaways
- Profit shifting disproportionately impacts developing countries by significantly reducing their essential tax revenues, which rely heavily on corporate taxes.
- International initiatives, like the OECD's minimum corporate tax rate, aim to enhance fairness in global taxation and combat profit shifting effectively.
Deep dives
The Impact of Profit Shifting on Developing Countries
Profit shifting involves moving accounting profits to low-tax jurisdictions without actual economic activity, which disproportionately affects developing countries. In these nations, corporate taxes represent a larger portion of the total tax base, making the loss of tax revenue from profit shifting more significant. Estimates suggest that around 10% of global corporate tax receipts are lost due to this practice, with developing countries losing more than $200 billion in 2022 alone. This scenario highlights the challenges of tax collection in these countries, where enforcing tax rules is already difficult due to limited resources.
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