draining development.pdf - Khazar University

282 Draining Development?9.4 percent in 2008). 15 Nonetheless, this excludes the profits of privatecompanies (which are included in the U.K. data). In this case, one maypresume that the two ratios are largely consistent, and a total profit rateof approximately 10 percent of GDP might be considered to be associatedwith large entities likely to undertake multinational trade. This isprobably a reasonable estimate of global corporate profits given that theUnited Kingdom and the United States are the two largest centers for thelocation of MNCs in the world. Assuming that this rate may be indicativeof worldwide rates, this leads one to suspect that, based on worldwideGDP of US$61 trillion, corporate profits may be conservativelyestimated at a total of approximately US$6 trillion in 2008.We have used secondary sources to check this conclusion. Global dataon profits are remarkably difficult to source. However, McKinsey haspublished a review of the after-tax profits of the top 2,000 companies inthe world in 2006 and established that the after-tax earnings of thisgroup in that year were US$3.2 trillion (Dietz, Reibestein, and Walter2008). Murphy (2008) finds that declared tax rates for companies registeredin the United Kingdom and quoted on the stock exchange for thatyear averaged 25.8 percent (this rate reflecting their worldwide rates andnot merely the rate applicable in the United Kingdom), which suggeststhat the worldwide pretax profits of the McKinsey sample may be US$4.3trillion. This figure is, of course, somewhat lower than US$6 trillion, buta sample of 2,000 companies is also somewhat lower than the total populationof MNCs. There are, for example, more than 2,200 companiesquoted in the United Kingdom alone (London Stock Exchange 2010).That 2,000 companies might represent 72 percent of total global profitslikely to be of concern does seem plausible, however, and this is consideredstrong supporting evidence that the estimates of global profits arereasonable.On this global profit estimate of US$6 trillion, the tax due at weightedaverage tax rates based on GDP noted above (32.1 percent) might beabout US$1.9 trillion. If secrecy jurisdictions and ring-fences are considered,this might fall to a tax figure as low as US$1.2 trillion at a rate of20.1 percent, as noted above. The rates are selected from among thosenoted above because, first, it is suggested that the average tax rateweighted by GDP indicates the taxes that would be due if companies