Profit shifting
Profit shifting is the deliberate relocation of taxable profit from the country where the economic activity genuinely happens to a lower-tax or no-tax jurisdiction. It is the practical outcome of base erosion: deductible payments flow out of high-tax countries and resurface as income in havens. Researchers Tørsløv, Wier and Zucman estimate that close to 40% of all multinational profit globally, roughly US$1 trillion a year, is shifted to tax havens. US multinationals shift about twice as much profit as multinationals from other countries. The Tax Justice Network puts the direct cost to governments at about US$348bn a year.
ByLoopholeKiln EditorialPublished
Figures current as of·Corrections
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Example: advertising revenue earned from UK users is routed by contract through a Dutch entity and then into a low-tax Irish structure, so the UK-sourced profit shows up as Irish income.
Why it matters to a small business: you pay tax in the country you operate in. A large competitor operating beside you may pay very little in that same country, which hands them a price and margin advantage they did not win on merit.