fDi Report 2013 - Taxation and FDI - special feature



Taxation and FDI – special feature

How much corporate tax MNEs pay is one the hottest issues in FDI, sparked off by revelations that Starbucks paid only £8.6m in corporation tax in its 14 years of trading in the UK, and nothing in the last three years, while the company had UK sales of nearly £400m in 2011.

The G20 subsequently commissioned the OECD to produce a study called “Addressing Base Erosion and Profit Shifting”. According to the OECD:

“…some multinationals use strategies that allow them to pay as little as 5% in corporate taxes when smaller businesses are paying up to 30%. OECD research also shows that some small jurisdictions act as conduits, receiving disproportionately large amounts of Foreign Direct Investment compared to large industrialised countries and investing disproportionately large amounts in major developed and emerging economies”

(OECD, 12 February, 2013)

Growing international condemnation of the low corporate taxes paid by MNEs takes place in the context of governments actually reducing the level of corporate tax imposed, especially in developed countries. On the one hand governments need tax revenues while on the other hand they are competing to attract FDI, for which the level of corporate tax is seen as a key location determinant.

It is therefore essential to understand how important corporate tax is for FDI decisions. To inform the answer to this question, fDi Intelligence has analysed the impact of corporate tax on greenfield FDI projects, which are most likely to be susceptible to differences in tax rates.

To read the full Taxation and FDI - special feature download the report.