The current international tax system, which is based on separate accounting for corporate affiliates trading at arm’s length prices, is increasingly viewed as prone to abuse, as noted in Chapters 5 and 6. Multinational enterprises have become adept at manipulating the rules of the current system to shift profits from high-tax to low-tax (or no-tax) jurisdictions. Several recent studies of worldwide revenue losses due to profit shifting suggest that short-term losses range from 5 to 10 percent of total corporate income tax revenues (Cobham and Janský 2018; Crivelli, De Mooij, and Keen 2016; OECD 2015; Tørsløv, Wier, and Zucman 2018; UNCTAD 2015).1 On average, revenue losses in OECD countries are found to be about twice as high as those in developing countries; however, revenue losses as a share of GDP are about one-third higher for developing countries (Crivelli, De Mooij, and Keen 2016).

Why Reform Is Needed and How It Could Be Designed