Danny McCance 9 Sep 2019 05:14pm

“Phantom” foreign investments total $15trn

More than a third (40%) of the global foreign direct investments (FDIs) are “phantom investments” passing through “empty corporate shells” as opposed to being used for “real business activity”

Phantom FDI now accounts for about $15trn (£12.1trn) globally according to a recent study from the International Monetary Fund (IMF) and the University of Copenhagen’s Center for Economic Behaviour and Inequality.

In less than a decade it has risen from 30% to 40% of global FDI, worth around $40trn, to now equal the combined GDP of Germany and China. It is also outpacing the growth rate of “genuine FDI”- which in turn has been outpacing global GDP since the financial crash.

According to the researchers, while the phantom FDI is “largely hosted by a few tax havens, virtually all economies – advanced, emerging markets, and low-income and developing – are exposed to the phenomenon”.

They state that, “most economies invest heavily in empty corporate shells abroad and receive substantial investments from such entities, with averages across all income groups exceeding 25% of total FDI,” the report stated.

This investment in foreign empty shells, the report went on to say, shows that domestically-controlled multinationals “also engage in tax avoidance”.

“Unsurprisingly an economy’s exposure to phantom FDI increases with the corporate tax rate,” it said.

In May, the Tax Justice Network named the UK as a global jurisdiction that is "most responsible for the breakdown of the global corporate tax system".