Global Tax Revenue Shortfalls due to Corporate Income Tax Avoidance, Evasion, and Illicit Trade: Evidence from the Tobacco Sector
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International Research, Campaign for Tobacco Free Kids, Washington DC, USA.
Project Deputy Director, Health Policy Center, University of Illinois at Chicago, USA
Publication date: 2018-06-13
Corresponding author
Estelle Dauchy   

Associate Director of International Research, Campaign for Tobacco Free Kids, Washington DC, USA
Tob. Prev. Cessation 2018;4(Supplement):A91
The production of tobacco is concentrated among a handful of very large transnational tobacco corporations (TTCs) that operate simultaneously in several countries. These companies do not pay their fair share of corporate income taxes to the societies in which they generate profits due to three main reasons: (1) tax minimization strategies that take advantage of the complexities of international tax laws; (2) tax competition between countries, which drives down nominal corporate income tax rates worldwide; and (3) illicit trade of these products manufactured by these companies. This paper uses detailed company data in the tobacco industry to illustrate how multinational corporations fail to contribute their fair share of direct corporate income tax remittances to the countries in which they generate profits

This paper combines several data sources to empirically evaluate the amount of corporate income tax revenue lost worldwide due to these three sources during 2007-2016. We present and estimate the three main drivers of CIT revenue losses—tax minimization, tax competition, and illicit trade, respectively. We combine various databases to estimate the size of CIT revenue losses attributable to these three aspects from the four largest transnational tobacco companies over the past decade.

Preliminary Results: We find that the tax revenue foregone from the four largest TTCs alone in the order of US$ 30.8 billion, representing almost 44 percent of the companies’ tax revenue remittances over the period. Almost half of the CIT tax revenue loss was due to illicit trade, almost one third to tax minimizations strategies, and the rest to international tax competition.

Based on our findings, we discuss current reform efforts to address these loopholes in the international tax system and lack of international cooperation, and conclude by suggesting policy measures to appropriately tax companies.

The research had no funding.

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