Conor here: In the following episode of The Taxcast Naomi Fowler and guests talk about how the US pressures countries to allow multinational corporations to shift profits into tax havens and how the American people are the biggest losers of this policy.
By Naomi Fowler at The Taxcast. Guests on this episode are Sergio Chaparro Hernández, International Policy and Advocacy Lead at the Tax Justice Network; Mark Bou Mansour, Head of Communications at the Tax Justice Network; and Alison Schultz, a Tax Justice Network research fellow. Cross posted from The Taxcast.
Naomi Fowler: Hello and welcome to the Taxcast from the Tax Justice Network, a monthly podcast about corruption, tax abuse, financial secrecy, and how we fix it. I’m Naomi Fowler.
President Trump: So we’ve spoken to everybody. You wanna play ball, this is what you have to pay. So as far as I’m concerned, we’re done.
Naomi Fowler: On the Taxcast today: countries can either capitulate to President Trump’s tax bullying. Or we come together to fight for our sovereign right to tax multinationals fairly. And is US economic policy good for the US economy and its people anyway?
Governments everywhere claim there isn’t enough money to take action on the climate crisis or the inequality crisis, and that’s not true. The money’s there, but it’s flowing to the wrong places, to the wrong hands. Multinational corporations are shifting billions into tax havens, and we’ve done some new number crunching about all this.
Mark Bou Mansour: Countries have lost about half a trillion US dollars to a US backed global gag order that has held countries back from publishing the names of multinational corporations that have been found to be shifting profit into tax havens.
Naomi Fowler: This is Mark Bou Mansour of the Tax Justice Network. The global gag order he’s talking about is the decision to keep the public in the dark on the profit shifting activities of multinational corporations. The United States is a powerful global resister to public country by country reporting, where multinationals above a certain size declare their actual activity in each jurisdiction, their number of employees and taxes paid in each country they do business. We know when this information is public, it discourages tax abuse. It’s good for investors, good for economies, and good for public accountability.
Alison Schultz: We estimate that 475 billion US dollars would have been recovered between 2016 and 2021 if we had public country by country reporting.
Naomi Fowler: That’s Alison Schultz, one of our brilliant data researchers. So that’s nearly half a trillion dollars of tax revenue lost. The situation for multinationals at the moment is that if your revenue is above seven hundred and fifty million Euros under OECD rules, you have to report your activities confidentially to the tax authority in the jurisdiction where you’re operating. Those tax authorities can exchange that information with other tax authorities, but it’s still private.
However, in the EU, multinationals must now report information publicly. It’s all still pretty new, and reports are only starting to emerge from that now. But there’s more work to do for the EU to make access fairer globally. This is the Tax Justice Network’s Sergio Chaparro-Hernandez:
Sergio Chaparro-Hernandez: EU countries, well, are making progress, but they are not, not allowing lower income countries to make the most of the public policy because they are restricting the information to their jurisdictions and that does not allow the rest of the world to assess the behaviour of those multinationals in their own jurisdictions.
Naomi Fowler: The country that has the best most open country by country reporting in the world is Australia. And they came, if you remember, under sustained attack, particularly from the US to weaken their legislation. And they did partly bow to the pressure.
But anyway, back to our latest number crunching. As a kind of snapshot on the current state of tax justice in the world, it tells us a lot. Our researchers look every year at data the OECD compiles and releases. It’s anonymised information on the activities of thousands of multinational enterprises. And its aggregated data. Our researchers have to become detectives to interpret it and match it up with other data because it’s all bunched together in ways that really aren’t helpful. It’s especially unhelpful to countries which don’t have access to this data on a non-anonymised basis, that’s usually global south countries because usually wealthier, more powerful countries don’t share it. If they did, it would help them understand what huge companies are doing in their countries and how much they should be taxing them. The data, the OECD releases is not only unhelpful and anonymised, it’s worse than that. Here’s Alison again.
Alison Schultz: All of the work here is based on old data because again this year we do not have updated data because the OECD has not released the 2025 update. The data is so bad you can always say the data is bad, but we do our best to correct it based on what is known from the academic literature.
Naomi Fowler: So, our researchers do the best they can. This year they focused on US multinationals using this old data, looking at a period between 2016 to 2021, so they looked at a five year period. And if anyone’s listening from the OECD, we’d like the up to date data please!
Alison Schultz: We used these data for all US multinationals on an aggregated basis, the profits, taxes, employees, assets, and sales by country. The data is from 2016 to 2021 and we do several corrections.
Naomi Fowler: It would be so much more useful to the world if we didn’t have to become detectives, but our data people are wizards, and they focused on US multinationals. There’s good reason for that.
Alison Schultz: US multinationals are, are a very big problem when it comes to corporate tax abuse, and this problem has become bigger over the last years, or at least the years where we have data.
We see that US headquartered multinationals shifted 24% of their global profits to low tax jurisdictions so you could say like every fourth, um, dollar of profit is actually shifted, and this makes them quite aggressive profit shifters because multinationals headquartered in other countries on average shifted 17% of their profits. And if you look at the development we’ve seen between 2016 and 2021, we see that they almost doubled their profit shifting. And this is quite interesting because the US is one of the few jurisdictions where we can say that actually profit shifting has gone up. They almost doubled the profit shifting. And if we take together the tax loss these US multinationals have caused from 2016 to 2021, this is 495 billion US dollars, a tax loss of nearly half a trillion dollars.
Naomi Fowler: US governments of all kinds have fought to keep the public in the dark on the profit shifting activities of multinational corporations. And the US itself is responsible for 29% of all corporate tax losses suffered by countries each year. And you’d think that you’d think, you’d think then that the United States must be winning in some way from all this.
Alison Schultz: If you then look at who is, who is suffering from this, at the expense of whom is this profit shifted? You first see that the US was the biggest loser in total terms, so 271 billion US dollars were actually lost by the United States itself, but we also see big absolute losses by many other countries, especially also higher income countries.
Naomi Fowler: And this is where the US as a powerful resistor to corporate transparency hurts other countries too.
Alison Schultz: If we then look at these losses by the share of health expenditure we see that lower income countries or countries from the global south have a way higher loss if we calculate this as share of the health expenditure of these countries.
But in general these US multinationals have over years harmed the US itself. However, what we do see is that the suffering of these losses has changed over time. What we see is that US multinationals profit shifting increasingly is harming other countries. And you also see how this has changed massively.
Naomi Fowler: We put a lot of this down to one particular event in the United States. Here’s Mark Bou Mansour again.
Mark Bou Mansour: We found this dramatic escalation in profit shifting by us multinational corporations who have been set loose by Trump’s 2017 Tax Cuts and Jobs Act. US multinational corporations are now shifting twice as much profit out of the rest of the world into the US, but then this is the crucial bit. They’re paying even less tax in the US than they were before Trump’s tax cuts were introduced.
Naomi Fowler: It’s ironic, isn’t it?
Mark Bou Mansour: To us it’s no surprise. Others might think, well, surely the US must have benefited from attracting all this profit shifting, but they have not. This whole tax competition thing, the point that this whole tax competition thing is bogus.
Naomi Fowler: Yep. The idea that if countries compete against each other and undercut each other on things like corporate tax rates, then it’ll benefit those countries. Well, it’s not happening in the United States, the worst offender for doing this. Our data researchers also found when it comes to wealth individuals are hiding in the United States, that’s also on the increase.
Alison Schultz: We then look at this wealth hidden in the US. So we estimate where this hidden wealth is actually sitting, and then we estimate who is actually owning this hidden wealth.
Naomi Fowler: They used some complicated ways to get these estimates with data from the Bank of International settlements, locational banking statistics, all kinds of stuff to finally estimate untaxed income from hidden wealth.
Alison Schultz: Between 2016 and 2021 we always have the three top destinations of hidden wealth of the Caymans, the UK and the United States. And we saw that 2020 was the first year where the United States became first and became more popular than the Caymans and the City of London for people to hide their wealth. So we conclude that the US has become a top destination for shifted profits and a top destination for hidden wealth of individual rich people. And then, we come to the politics behind this.
Naomi Fowler: The politics are all about the United States using its power to intimidate countries into not using their democratic right to fairly tax US corporations doing business in their countries. The world’s nations really need to protect their tax sovereignty.
Alison Schultz: So the dramatic escalation from the US in enabling multinational corporations and the super-rich to abuse tax in other countries is a pincer movement on the tax sovereignty of nations, and we say that it is the result of deliberate policy choices in the US, including one particular act. And this one particular act is the Tax Cuts and Jobs Act, and we continue our analysis by looking at what exactly this Tax Cuts and Jobs Act has done to the US and to other countries.
Naomi Fowler: Think of a ripple in a pond, going out from the centre and destabilising everything.
Alison Schultz: So the Tax Cuts and Jobs Act that was passed in December 20, 2017 became effective in 2018 and it reduced the US Federal corporate tax rate. It also shifted the US towards a quasi-territorial system of taxing multinational profits and included some new planned anti-avoidance, anti-base erosion rules. And in general it was presented as a way to curb profit shifting, especially curb profit shifting outside of the US and also to bring jobs state-side.
Naomi Fowler: That was the promise. So our researchers used another data set to see what US multinationals did in response to Trump’s 2017 Tax Cuts and Jobs Act. Turns out it was particularly beneficial for big tech companies, and that wouldn’t go unnoticed by other multinationals.
Alison Schultz: What is interesting I think is that in 2024, their average rate they’re paying, the effective tax rate they pay on their profits dropped to 10.6%, so they only have half the tax rate of other US corporations. So what we see now, so what has happened in return is that actually US companies have reported way more profits in the US. We see that this US share of total profits goes up from below 40% to more than 60%, I think it goes up to 68% in 2021. So what you see is that US multinationals in response to this act, have really reported way more profits in the US. Then we’re interested where these profits are actually coming from so where were these profits booked before being booked into the US?
Naomi Fowler: They looked at which four countries have lost the most booked profits over the period they’re looking at, so between 2016 and 2021. And it’s Luxembourg, Bermuda, the Netherlands and Puerto Rico.
Alison Schultz: And then these countries are quite surprising because it’s all well-known corporate tax havens who used to have big profit shares of US multinationals, but who lost those profit shares over time. So you see that all of these four had quite a good share of profits of US multinationals booked in 2016. However, in 2021, they only had very few profits left there. In general, we can therefore say that the US has kind of substituted traditional tax havens, though we have to be careful. They are not substituting all of them because Ireland is still the top destination for US profits, but the US has gotten by 2021 the third preferred destination to shift profits into for US corporations.
Naomi Fowler: Looking at the big tech company’s behaviour in the US and then globally was very interesting.
Alison Schultz: If you look at big tech companies only, they had quite small pretax profits in the US before the act. And in 2024, most of their profits were actually booked in the US. And in the US , we see that the, that the five big tech companies in 2016, they all paid relatively high rates on their profits. However, in 2024, they only paid rates between 8.4 and 15.9%, so very low effective tax rates.
Abroad, the reverse has happened, so in 2016 they paid very low tax rates abroad, something between 2.8% and 9.7%. And in 2024, they have stopped some activities in these super low tax jurisdictions, putting the profits back to the US and therefore the effective tax rates paid abroad were way higher in 2024 as compared to 2016.
So what we conclude from this is that the US policy or the Tax Cuts and Jobs Act has actually put the US in the place where it’s the favourite tax haven for US multinationals. And then of course you can ask if this has been something the US has benefited from, so maybe they have all these additional profits and now they generate a lot of tax revenues. And this is exactly not what we are seeing.
What we see is that the US profits have increased immensely, like 70% between 2016 and 2024. However, the total taxes they have paid in the US has declined between 2016 and 2024. And we calculate the difference between a scenario of keeping tax rates and profit shares as in 2016 and what has happened after the Tax Cuts and Jobs Act, and we estimate that the US itself lost 33 billion in tax revenue by positioning itself as a tax haven.
It also allowed a lot of profits to remain untaxed, and that’s why it also had a bad influence, or a bad impact on the entire world. You see that profits, like total profits of US multinationals have increased more by more than 50%. However, total taxes have only increased by about 10%. So if we calculate the scenario where everything would have stayed the same as in 2016, but profits gone up like we’ve observed, the world has lost 178 billion in addition to what the US itself has lost.
So you see that the US has really not benefited in tax payments and they have also not delivered what Trump promised, which was that you get additional jobs. So this is the Tax Cuts and Jobs Act, but we actually see that the share of employment in the US of the multinationals and the share of payroll have not changed at all, some, some tiny basis points changes, actually in 2017 the share was higher as compared to 2021. What we conclude, the US itself has become a corporate tax haven. Trump’s Tax Cuts and Jobs Act did not end profit shifting by US multinationals as promised, it merely redirected it back into the US. What changed was not the scale of corporate tax abuse, but its geography. The US itself became the preferred tax haven.
Naomi Fowler: Here’s Mark again.
Mark Bou Mansour: There’s now two competing visions for the future. One is the UN tax convention vision, which is about a fair allocation of taxing rights between countries. The UN Tax Convention is an opportunity to change this really fundamental piece of international tax architecture that we’ve had for over a hundred years. So, OECD’s outta the picture.
And the other is the Trump’s administration’s attempt to stop any country from taxing US multinational corporation and their attack on countries tax sovereignties.
Naomi Fowler: The US administration is exerting pressures left, right, and centre on countries trying to fairly tax their multinationals. Tariffs are one of the many levers they’re pulling, and the fight back now has to be for countries on the receiving end of US intimidation to protect their tax sovereignty and staunch the flow of tax losses tax losses by embracing international cooperation through the United Nations. The OECD was never going to deliver something like a UN tax convention with the highest standard of public country by country reporting right at its heart. Here’s Sergio again.
Sergio Chaparro-Hernandez: The OECD has failed to incorporate demands from key actors regarding the need to improve the global tax standard. Civil society, investors, academics, on one hand that are pushing for moving towards public regimes with as a wide a coverage as possible. Whereas multinationals and industry groups and professional services and firms have resisted successfully this push for transparency in the way the OECD has handled the mandate that the G20 gave to them, and how the OECD has not incorporated like all these views from the actors that have pushed for more transparency.
Naomi Fowler: So, there you have it. US multinational corporations are now shifting twice as much profit out of the countries they operate and into the US, but they’re paying even less tax in the US than they were before Trump’s tax cuts were introduced.
We’ll be following formal negotiations on a UN tax convention, the only way it seems to us to replace the old order and to explode the decades-long US-dominated OECD process that we’ve had so far. You can read more about this research and about the negotiations on our website. All the details are in the show notes. That’s it for this month. Thanks for listening. We’ll be back with you soon. Bye for now.
