What is it about?
A number of Danish municipalities wish to reduce tax avoidance in their public procurement. To support this development we construct a firm-level indicator of the risk of tax avoidance due to profit shifting. Using the indicator we find that app. 20% of the contract sum of Danish municipalities is used on contracts with companies with a moderate to high risk of profit shifting. On average, the risk of profit shifting is highest for large non-Scandinavian multinational contractors in sectors such as construction, health, and information processing.
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Why is it important?
Public procurement depends on the taxpayers’ willingness to pay and is therefore particularly relevant to examine in a tax avoidance context. A recent global analysis reveals that 36% of the profits of multinational corporations are shifted to low-tax jurisdictions. In high-tax jurisdictions, this leads to significant tax losses, market distortions, and unfair competition with locally owned companies.
Perspectives
Currently, neither the EU nor the Danish procurement rules permit setting criteria to reduce tax-motivated profit shifting. I hope our indicator will aid public procurers to identify multinational companies with a high risk of profit shifting, and, when legally possible, help them ensure that public money are spend on goods and services from companies that contribute a fair share of their profits to the countries and communities in which they profit.
Professor Henrik Gislason
Technical University of Denmark
Read the Original
This page is a summary of: Assessing the risk of profit shifting among the suppliers to Danish municipalities, Journal of Public Procurement, March 2024, Emerald,
DOI: 10.1108/jopp-07-2023-0045.
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