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Headlines are blaring of a great breakthrough in taxing multinational corporations, especially big tech. The OECD (The Organisation for Economic Cooperation and Development) announced a time to celebrate. A hundred and thirty six countries agreed to enforce a global corporate tax rate of at least 15% and a fairer system of taxing profits where they are earned.

But are they?

Let's look at how the corporations do their tax dodging. In 2012, Ian Griffiths, an investigative reporter for The Guardian newspaper disclosed the startling fact that Amazon claimed sales in Britain of $213 million, while its sales in Luxembourg were $11 billion .

What? Where? Luxembourg? It’s the last Grand Duchy of Europe. With a population under 500,000, it’s a country smaller than an average American city. It’s also one of the world’s leading financial centers and recognized as being in the big leagues with New York, London, and Hong Kong. How can little Luxembourg be so amazing? It sells something everyone wants , something more valuable than gold, diamonds or oil — tax relief, and at a very affordable price.

The Financial Times described this Dutchy as: "Luxembourg sometimes resembles a criminal enterprise with a country attached.”

Calling little Luxembourg a criminal enterprise is a bit unfair because countries like the US – including its tax courts – declare that these tax avoidance schemes by multinational corporations are completely legal.

 But calling little Luxembourg a criminal enterprise is a bit unfair because countries like the US – including its tax courts – declare that these tax avoidance schemes by multinational corporations are completely legal.

What's In It For The Tax Haven?

Whereas in the US, and most developed countries, the corporate tax rate would be about 30% (only 21% currently in the U. S.), a tax haven like Luxenberg will charge only 2%. It will give the corporation a tax opinion guaranteeing this rate, provided that the corporation also agrees to have a minimum footprint in the country. So, for its sales in Britain, Amazon will have most of its employees in Britain, but only a token staff, if any, in Luxembourg. Therefore, the British taxpayers are paying for those employees healthcare, their children's education, and so on and so on. Luxembourg is providing none of these services. The 2% is pure gravy.

Is It Really That Big a Tax Haven?

In 2014, a Luxembourg PricewaterhouseCooper (PwC) auditor, Antoine Deltour, grew so upset at what he saw, and how nothing was done from the revelations about Amazon, that he felt he had to do something. He appeared on the French equivalent of 60 Minutes called Cash Investigations and described small office buildings with a long list of large multinationals (MNCs) on its door.

On one building entrance, there were 340 MNCs on the list. Think of the names of all the big corporations you know until you are too tired to continue: Microsoft, Amazon, Koch Industries and so on and so on. Most will be on a door in Luxembourg. Of course, as one would expect, the name “Disney” appears in this fairyland of dreamy tax rates.

Imaginary Expenses

The creative ways that tax lawyers and accountants dream up to reduce taxes, and that government tax departments approve, inspire admiration. Here’s one more described by tax law Professor E. Kleinbard of the Gould School of Law in class notes he titled, Through a Latte Darkly.

Starbucks can buy coffee beans directly from producers in South America, but it incorporated a company in Switzerland from which Starbucks US buys its coffee. The beans are not shipped to landlocked Switzerland, but direct to the US. The Swiss firm does nothing but process the orders on its computers. Starbucks Switzerland charges Starbucks US for this service and the IRS allows it.

So how does the tax man allow this obvious dodge? There is a tax rule called ‘transfer pricing.’ It permits a company to charge for internal services what it would pay if it had bought these services from an outside business. Starbucks could show that small coffee shops had to order through a broker paying, for discussion purposes say, about 20%.

Together, this relocating of sales and allowance of expenses is called profit shifting.

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How Big Is the Loss to the US?

 In the Fall 2014 edition of The Journal of Economic Perspectives, Gabriel Zucman noted that it was hard to estimate the exact amount of tax loss to the US because of tax haven secrecy about this practice, but he could give us a dismaying estimate that the US loses a full 20% of corporate taxes by this completely legal tax avoidance method:

“Measuring the costs of tax havens to foreign governments is fraught with difficulties. However, balance of payments data and corporate filings show that US companies are shifting profits to Bermuda, Luxembourg, and similar countries on a large and growing scale. About 20 percent of all US corporate profits are now booked in such havens, a tenfold increase since the 1980s."

What Does the New Reform Do?

So, pre-reform we had pretend locations of sales plus imaginary expenses—remember, all perfectly legal but only because the governments say so.

We might expect that the reform would be simple and straightforward by requiring the companies to report 100% of their sales within the country on that country's tax return; for example, sales in the US would be reported as income earned in the US. Of course not. Simple reforms would not allow for continued tax dodging. The reform says that only 25% of sales made in a country have to be reported in the country, a full 75% remain in the tax haven. Now that 75% is also taxed at 15% but that goes to the tax haven. That's still much better than reporting in the US at the starting tax rate of 30%.

And there's another little exemption: the corporate profits are only taxed above 10%.

And if you're thinking, yeah, but there are so many other deductions in the US they won't pay 30%. Well, the tax havens can give them the same tax breaks. There are also complicated safe haven provisions and deferrals in the new reforms. It will take another 20 years or so before investigative reporters and whistleblowers expose just how little the tax havens are actually charging on the 15% of the 75%.

Complexity is used over simplicity to hide freight train sized loopholes in convoluted exceptions. (Dodd Frank over Glass Steagall is another example) You, average voter, can't criticize it, the convoluted phrasing says to you, because you can't understand it, you must stand in awe of this high level achievement— and believe what you are told about it.

However, Oxfam’s Tax Policy Lead Susana Ruiz does have the patience and the expertise to read and understand the proposal. Here's her conclusion:

“The tax devil is in the details, including a complex web of exemptions that could let big offenders like Amazon off the hook. At the last minute a colossal 10-year grace period was slapped onto the global corporate tax of 15 percent, and additional loopholes leave it with practically no teeth.”

Biden’s 15%

Biden proposes a 15% minimum corporate tax on U.S. based corporations, but this is on the sales they record as made in the U.S. It does not affect tax avoidance schemes by which the sales made in the U.S. and shifted to a tax haven.


The 15% minimum corporate tax avoidance reform is just another of many examples of financial reforms that appear to remedy economic inequality, but do the minimum in order to preserve it. There is no need for the US, or any country, to seek the cooperation of other countries to tax sales made in their country. The US tax code could specify that a sale in the U.S. is a sale in the U.S.

While the major news headlines uncritically proclaim a great step forward in that all corporations will now pay a 15% tax, they fail to mention that the US will get only 15% of 25% after deducting 10% of the sales declared in the US.


I can’t put it better than Susana Ruiz of Oxfam: "Today's tax deal was meant to end tax havens for good. Instead it was written by them.”

While the reform may be a step in the right direction, it is a baby step. But, the Multi Nationals are now safe from an effective attack on their privileged tax schemes for decades to come.

Jan D. Weir