Extractives: how a trading hub mis-prices the oil out of a country, and who pays

Extractives face the opposite problem to tech. A tech company's value is mobile by nature; an oil field's value is bolted to the ground, often in the poorest countries on earth. You cannot move the oilfield to Bermuda. So the sector does the next best thing: it sells the commodity coming out of the ground to a group trading company in a low-tax country at a low price, and that trading company sells it on at the real market price, booking the margin where the tax is light. The barrel leaves the producing country; the profit on it never arrives. This page is about that trading-hub move, and about who carries the cost, because here the answer is not an abstraction.

The tools beneath this are transfer pricing and debt loading, explained in general elsewhere. What is specific to extractives is the trading hub as the pricing point, the difficulty of valuing a one-off intra-group commodity sale, and the fact that the losses fall on countries that can least afford them.

The signature move: the commodity trading hub

The mechanism is mis-pricing at the point the commodity is sold inside the group. A producing subsidiary in a resource-rich country sells the oil, gas or mineral to a sister trading company in Switzerland, particularly the canton of Zug, or in Singapore or the Cayman Islands. The internal sale is priced low. The trading company then sells the same commodity on the open market at the real price and books the difference where corporate tax is minimal.

Switzerland became the world's dominant commodity trading hub for specific reasons: low cantonal tax rates, minimal disclosure requirements, and no withholding tax on dividends and royalties paid to non-residents. The major trading houses all maintain large Swiss operations. An important caveat, which we keep attached: the hub company is usually a genuine commercial business, with real traders taking real market risk. The problem is not that the hub is a sham. It is that the price of the sale between the producing subsidiary and the hub is set by negotiation inside the group rather than by an open market, which leaves room for systematic below-market pricing at the point of extraction.

The anti-abuse answer specific to this sector is the so-called sixth method, set out by the Natural Resource Governance Institute: require the taxpayer to benchmark the commodity sale price against the publicly quoted spot price on the date of shipment. Without that benchmark, a group can agree an internal price at a discount and quietly understate the revenue booked in the resource country. The fact that this method had to be invented at all tells you the size of the problem it answers.

A secondary lever is debt loading. A mine or oil project needs enormous upfront capital, so financing it partly through loans from a related entity in a low-tax country is structurally normal, and the interest on those loans is deductible in the high-tax producing country. Because large related-party borrowing is unavoidable in this sector, and the arm's-length interest rate is hard to verify, the debt lever is unusually easy to hide inside legitimate project finance.

What the sector shifts, and what it costs

The sector shifts a strikingly high share of its profit. The underlying academic estimate (Beer and Loeprick, 2015) puts revenue losses from profit shifting in the sector at 12% to 35% of the income tax base, depending on a country's tax regime; the 34% figure widely quoted, including in the Tax Justice Network's 2025 analysis of profit shifting in oil and gas, sits at the top of that range. The estimate rests on data running to 2012, before country-by-country reporting and the post-BEPS documentation rules, so we treat it as an order-of-magnitude finding rather than a current point figure.

Now the part that makes this sector different from the others on this site. The harm is concentrated in the countries least able to bear it. IMF research published in November 2021 estimated that sub-Saharan African governments lose between $450 million and $730 million a year in corporate income tax from profit shifting by multinational mining companies alone. Across the whole developing world, UNCTAD estimated that developing countries lose around $100 billion a year in tax revenue to profit shifting by multinationals. We state that figure as $100 billion and stop there: a wider "$250 to 300 billion total development finance loss" sometimes attached to this number is not supported by the UNCTAD source, so we do not use it. On a developing-world-harm claim the conservative, sourced number is the only one worth quoting.

For scale, the Tax Justice Network estimated in 2021 that the world loses over $483 billion a year to international tax abuse in total, of which $312 billion is corporate. And the OECD's standard estimate is that base erosion and profit shifting costs all countries between $100 billion and $240 billion a year, 4 to 10% of corporate tax collected worldwide. A March 2026 OECD report on critical raw materials reiterated that $100 to 240 billion range; we note that the report itself is focused on Central Asia, so it restates the global estimate rather than producing a new one.

Why does a $500 million annual loss hurt a resource-dependent country so much more than a richer one? Because corporate tax from extractives often makes up a large share of that country's entire government revenue. A loss on this scale is not a line in a budget; it is a measurable reduction in what is available for health, schools and roads. The countries with the least capacity to audit transfer prices, renegotiate treaties or litigate against a multinational's legal team are precisely the ones losing the highest share of their revenue.

Why this one is not about you

This page departs from the others deliberately. The tech and retail pages end by explaining why a small domestic firm cannot copy the move. The extractives move is not something a small business would ever be in a position to use; there is no corner-shop equivalent of an oil major's Swiss trading desk. We include the sector because its signature move takes money from the public purses of the poorest countries on earth, and because it shows the same toolbox doing its most damaging work. The victim here is not a competitor down the street. It is a national budget.