Foreign investment corporations avoid taxes, damaging the economy

Developing economies are increasingly vulnerable to sophisticated strategies by foreign investment corporations as they seek to circumvent the law to avoid or reduce their tax payments.

Illustrative photo. (Source: AFP/VNA)

That is the warning of the International Monetary Fund (IMF) in a report published on June 25.

According to the report, foreign investors have taken advantage of differences in each country's tax laws to transfer profits to countries with low tax rates in order to evade taxes.

These tactics seriously damage the financial health of countries and reduce the ability to finance government operations in the context of budget deficits.

The IMF said tax planning could help large corporations "save" tens to hundreds of millions of dollars.

This amount is insignificant compared to the total tax revenue of developed economies but is considered quite large for developing countries.

In addition to tax planning, foreign investment corporations promote internal transactions to take advantage of tax rate differences between countries.

Specifically, corporations will overprice or underprice their commercial activities to shift revenue and profits from high-tax countries to low-tax countries.

According to the IMF, 50% of Brazil's foreign direct investment (FDI) is transferred to low-tax countries and territories such as Austria, the Cayman Islands and the British Virgin Islands before reaching its final destination.

Meanwhile, more than 60% of Russia's FDI goes to Cyprus and the Netherlands.

IMF experts warn that very few countries are currently able to protect themselves from the tax strategies of foreign investment corporations.

Faced with this situation, IMF experts called for reform of the tax system on a global scale./.

According to Vietnam +