Tax avoidance costs developing nations $100 bn revenue loss

Developing nations are witnessing annual tax revenue losses to the tune of USD 100 billion due to entities resorting to offshore hub-based tax avoidance practices, a UN report said today.
"Tax avoidance practices are responsible for significant leakages. An estimated USD 100 billion annual tax revenue loss for developing countries is related to inward investment stocks directly linked to offshore investment hubs," said the UNCTAD's World Investment Report 2015.
"... The more investment is routed through offshore hubs, the less taxable profits accrue. On an average, across developing economies, every 10 percentage points of offshore investment is associated with a one percentage point lower rate of return."

Tax avoidance can be tackled while promoting investment in sustainable development, it stressed.
UNCTAD supported India's plans to replace bilateral investment protection treaties with a new pact that seeks to plug gaps and enhance legal protection of foreign investors in India as well as Indian investments abroad.
"India made available its new draft model, the Bilateral Investment Treaty (BIT). The new model includes several innovative provisions," the report said.

Multinational enterprises employ a range of tax avoidance tools, many of which take advantage of investment structures in these hubs.
"Tax avoidance practices by multinational enterprises are a global problem because investments from offshore hubs are made in developing and developed countries alike," UNCTAD said.

Arguing that the ongoing anti-avoidance discussion pay limited attention to investment policy, the report made a case for additional measures to support sustainable investment.
The need for a review of Bilateral Investment Promotion and Protection Agreement (BIPA) framework arose after several multinational companies invoked the treaty against the government.
Under the new model of BIT, investors who have substantial business activities in the home state would be protected by the treaty. The proposed BIT would remain in force for 10 years.
The model stipulates that investors must first submit their claim before relevant domestic courts or administrative bodies for the purpose of pursuing domestic remedies, wherever available.

After exhausting all judicial and administrative remedies, if a resolution of the problem remains elusive, the investor may commence proceedings under the investor-state dispute settlement (ISDS) article.