A staggering amount of foreign direct investment is really just “phantom” capital passing through corporate shells, typically to avoid taxes, according to a new study published by economists at the International Monetary Fund.
Countries often compete for foreign direct investment — defined by the researchers as “cross-border financial investments between firms belonging to the same multinational group” — in the hopes of improving their populations’ skills and technology use. But in 2017, about $15 trillion of the nearly $40 trillion in foreign direct investment recorded worldwide, or about 40%, was just passing through, the researchers found, leaving little behind in terms of productive investment.
The bottom line: While policymakers have long known that tax issues drive a substantial amount of investment by multinational corporations, the data suggests that countries have more work to do if they want to cut down on the shell games of international tax avoidance.
