Ethiopia loses over $1.1 billion every year by profit shifting companies, a new report reveals. The new individual countries level global tax loss estimates released today by the Tax Justice Network, shows that Ethiopia loses $1.1084 billion per year, which is 2.34% of its GDP.
The report that listed Ethiopia 25th, ranked Chad from Africa as the top country in the world losing close to 7% of its GDP due to tax losses to profit shifting by multinational companies.
From African countries Guinea and Zambia ranked 7th and 9th losing close to 4.5% their GDP while Eritrea and Namibia got 10th and 11th on this global report that used a methodology developed by researchers at the International Monetary Fund (IMF).
Profit shifting is the process whereby companies move profits from their subsidiaries in higher tax countries, where the real economic activity takes place, to other subsidiaries in ‘tax havens’ such as Dubai, Djibouti and close to two dozens of territories in the world.
This is typically achieved by the multinational company setting up internal trades which exploit international tax rules to move taxable profits from one jurisdiction to another.
Developing countries are highly affected by profit shifting, according to the report that estimated global losses to reach $500 billion a year. “…Whilst the largest losses occurred in rich economies such as the United States, lower-income countries were the biggest victims of profit shifting. Some countries, such as Argentina (4.42%) lost a significant proportion of their GDP to profit shifting,” it said.
While this global total is more cautious than the $600 billion estimate of the IMF researchers, the distribution is also different. Losses are now estimated to be even more intense in lower-income countries in relation to GDP and as a proportion of total tax revenues.
Profit shifting has been a big focus of international attention since scandals at companies like Apple and Amazon revealed the scale of distortions – and the systemic nature of avoidance schemes marketed by big 4 accounting firms was then laid bare in the ‘LuxLeaks’ revelations.