draining development.pdf - Khazar University

Accounting for the Missing Billions 275proxy for the capacity to generate profits. Because this exercise is focusedon the taxation of profits in particular locations, this weighting is likelyto indicate the effective tax rates that companies are seeking to avoid bytransfer pricing activity given that the taxation of profits is the motivefor using transfer pricing. The only other viable method that might indicatethe impact of profit shifting through transfer mispricing is to weighttax rates by the population of the jurisdictions: such an exercise wouldindicate a shift from locations with high populations, requiring taxationrevenue to service local need, to locations with low population, requiringlittle taxation to service the needs of the population (this is also, ofcourse, a characteristic of secrecy jurisdictions). This second weightingmethod is also considered in the analysis offered below.Weighting by GDP supplies a different picture of average tax rates, asshown in figure 9.2. The weighting in figure 9.2 has been carried outusing notional 2009 GDPs expressed in U.S. dollars as a consistent rankingmechanism that is unlikely to have introduced distortion becauserelative positions are unlikely to have changed materially for this purposeover time.Average tax rates fall within the ranges noted within the standardeconomic literature mentioned above. This literature gives, however, amisleading view. Because of the presence of the biggest economy in theFigure 9.2. Corporate Tax Rates, Weighted by GDP, 1997–20084035percent3025201997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Average tax rateWeighted average basedon GDP of countrySource: Author compilation using 2009 GDP data taken from World Factbook (database), Central IntelligenceAgency, Washington, DC, https://www.cia.gov/library/publications/the-world-factbook/.