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Developing countries were missing out on billions of much needed-revenue as a result of the tax rate pacts, and other methods, the European Network on Debt and Development (Eurodad) said in Hidden Profits, a report published today (12 November).
The treaties often result from “double taxation” talks to avoid companies being taxed in two countries for the same thing. Supporters argue the treaties can encourage investment in the world’s poorest countries.
But they can also be exploited by companies using lower rates, or special holding structures in certain countries such as Spain and Luxembourg, to minimise their tax payments.
For example, Spain negotiated down Tajikistan’s usual 12% corporate rate on the taxation of interest on loans to 0%. Exploiting lower rates of taxation on the interest on loans is one of the methods exposed as being used by multinationals in the Luxembourg Leaks probe.
Vacuum and hand-dryer firm Dyson used companies in the Isle of Man and Luxembourg to legally funnel about €383 million into its UK operations. It paid just 1% interest on those loans, slashing its British tax bill by millions, according to the investigation.
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