Nick Shaxson ■ Quote of the day – tax avoidance as red flag for investors


Tax avoidance as refined sugar: a short-term hit, with long term damage

From the Financial Times, our quote of the day:

“investors were viewing the aggressiveness of a company’s tax planning as a proxy for accounting risks and the company’s broader management style.”

Which is just as we have always said. Tax avoidance is shortcut behaviour: the opposite of building genuine long-term productive business. Or, as UK barrister David Quentin noted not so long ago:

“Tax avoidance in companies is like refined sugar in the human body – empty financial calories with adverse long-term health effects.”

But that’s not all. Our quote of the day stands in a story which begins like this:

“Listed companies in developed markets are avoiding at least $82bn of tax a year by using tax havens and other minimisation strategies, according to detailed analysis of more than 1,000 businesses.

The analysis was conducted by MSCI, the index provider, and suggests that companies in the healthcare and IT sectors were among the biggest culprits.

This is just one of a number of different estimates of corporate tax avoidance. Several others exist. For example, a U.S. official report in January notes, for the U.S. alone:

“On average, very little tax is paid on the foreign source income of U.S. firms. Ample evidence of a significant amount of profit shifting exists, but the revenue cost estimates vary substantially. Evidence also indicates a significant increase in corporate profit shifting over the past several years. Recent estimates suggest losses that may approach, or even exceed, $100 billion per year.”

And recently, on the subject of developing countries, we reported on this fascinating UNCTAD report, which we summarised:

“developing countries lost around $100 billion per year in revenues due to tax avoidance by multinational enterprises (MNEs), and as much as $300 billion in total lost development finance.”

More reports on the scale of these issues, here.

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