Many MNCs use 'profit shifting' to evade tax: Report

Many multinational companies operating in India and having links to tax havens use profit shifting strategies to "evade" taxes, according to a research report by Christian Aid .

The conclusions from the research report by UK-based international development group Christian Aid comes at a time when the Indian government is making efforts to crackdown on tax evasion and increase the tax base.

"Our research, based on the analysis of financial and ownership data of almost 1,500 MNCs operating in India, strongly suggests that MNCs with tax haven links use profit shifting strategies to evade and avoid taxes.

"As a result, the government of India may have lost tax revenues that could otherwise have been used to invest in human development," Christian Aid has said in a report released late last month.

It noted that profit shifting to low tax jurisdictions could be a major cause for base erosion in India.

Also, findings suggest that "the current transfer pricing rules and counter measures (at least those adopted by the government of India) might not be effective to tackle tax evasion caused by corporate's profit shifting".

"Profit shifting by MNCs can significantly reduce the tax revenues raised by governments.

"In countries where taxes raised as a percentage of GDP are very low, the revenue foregone can seriously undermine efforts to tackle poverty and invest in human development," the report said.

Christian Aid is part of the Task Force on Financial Integrity and Economic Development.