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International Tax Avoidance Investigated from A Network Science Perspective

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Abstract

Economic activities have tremendously globalized as a result of advances in transportation and information and communication technologies. Although business can now be easily conducted across multiple jurisdictions, the rules regulating these economic activities remain local in their scope. Each jurisdiction legislates its own laws in accordance with its respective policy goals. This creates inconsistencies among rules and fosters opportunities for tax avoidance by economic actors. In order to contribute to the exposure of tax avoidance and a better regulatory environment for international taxation, we analyze tax rules, firm-level equity investments, and multinational corporate structures within the framework of network science. We assert that countries must develop countermeasures and international tax rules, and engage in international cooperation in order to combat tax-avoiding behaviors.

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Notes

  1. 1.

    Note that there is controversy regarding the contributions of economic globalization [3].

  2. 2.

    Some legal scholars claim that states are given a wider degree of discretion concerning legislative jurisdiction than the enforcement thereof [6].

  3. 3.

    Treaty shopping is sometimes called treaty abuse [32] or improper use of tax treaties [33].

  4. 4.

    We used the inward and outward FDI stock from and to OECD member countries as the FDI indicator.

  5. 5.

    Note that it is not our intention to claim that the listed affiliates are surely involved in tax planning.

  6. 6.

    GDP data comes from [82, 83] for every country except the following countries. Data is obtained through [84] for Cayman Islands, San Marino, Syria, Anguilla, Curaçao, the British Virgin Islands, the Democratic People’s Republic of Korea, French Polynesia, New Caledonia, Sint Maarten, and Somalia. Data is acquired through [85] for Taiwan and Gibraltar. Data from [86] is used for the Reunion). The same holds true for the conduit outward/inward centralities explained later.

  7. 7.

    The level of public service provision substantially differs, even among OECD countries, which have the world’s richest economies. For instance, in 2018, France spent 55.9% of its GDP in its expenditures, whereas Ireland spent 25.5% [89].

  8. 8.

    As of 2020, 95 jurisdictions joined the MLI and three expressed interest in it [95].

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Acknowledgements

This work was supported by JSPS KAKENHI Grant Number JP17KT0034.

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Authors and Affiliations

  1. Graduate School of Advanced Integrated Studies in Human Survivability, Kyoto University, Kyoto, Japan

    Tembo Nakamoto & Yuichi Ikeda

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  1. Tembo Nakamoto
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Correspondence to Yuichi Ikeda .

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Editors and Affiliations

  1. Graduate School of Advanced Integrated Studies in Human Survivability, Kyoto University, Kyoto, Japan

    Yuichi Ikeda

  2. Department of Mathematics, Niigata University, Niigata, Nishi-ku, Japan

    Hiroshi Iyetomi

  3. National Institute of Informatics, Tokyo, Japan

    Takayuki Mizuno

A. Appendix

A. Appendix

As part of the result of the analysis described in Sect. 4, Tables A.1, A.2, and A.3 show the top 10 US, Europe, China-based multinationals’ affiliates that the model identified as a key company. In the column of the name, the name written in bold indicates a multinational group’s name, and the number in parenthesis indicates the number of affiliates listed in the tables. The column of type indicates the categories of the key companies. The multinationals that ranked in the top 10 in 2015 but were not analyzed are written in the tables’ notes.

Due to the limited number of pages, we only list the affiliates that fulfill the following three conditions. The first condition is that a holding company is not a listed company. If it is a listed parent company, we exclude itself and the conduit companies directly linked with it because they seldom minimize their tax payment. The second condition is that a holding company is directly linked with more than one conduit company. A holding company with a conduit company usually has more risk of being used for tax purposes than a holding company without any conduit company. The third condition is that a holding company’s jurisdiction is different from its conduit companies’ jurisdictions. A holding company with a foreign conduit company is more suspected of involving an attempt to avoid tax payments than a holding company without any foreign conduit company.

The tables include more key companies regarding European-based multinationals than the US and China-based multinationals. This probably is because the database used for the analysis covers the companies located in Europe much well than the rest of the world. Note that we do not have any intention that the listed affiliates are surely involved in multinationals’ tax strategies.

Table A.1 Identified affiliates of the top 10 US-based multinationals
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Table A.2 Identified affiliates of the top 10 European-based multinationals
Full size table
Table A.3 Identified affiliates of the top 10 China-based multinationals
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Nakamoto, T., Ikeda, Y. (2021). International Tax Avoidance Investigated from A Network Science Perspective. In: Ikeda, Y., Iyetomi, H., Mizuno, T. (eds) Big Data Analysis on Global Community Formation and Isolation. Springer, Singapore. https://doi.org/10.1007/978-981-15-4944-1_9

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