What is it about?
In many rich economies, big companies have found a clever way to look like foreign investors without ever leaving home. They send their own profits on a brief detour through low-tax hubs and then bring the money back, re-labelled as “foreign direct investment.” This round-tripping boosts headline FDI figures but quietly drains public coffers, because the returning cash now qualifies for tax breaks and legal protections meant for genuine outsiders. Our study tracks these disguised flows across 22 OECD countries from 2011-2021 using new OECD data that reveals who really controls each investment. We show that round-tripping can make up a hefty slice of reported FDI—especially in large, high-tax economies whose firms have the know-how to set up offshore subsidiaries. Where governments enforce tough “controlled-foreign-company” (CFC) rules, the trick is less common; where they don’t, it flourishes. By mapping the scale and the drivers of the problem, we give policymakers practical levers: tighten ownership-disclosure rules, align CFC laws, and coordinate on a global minimum tax so that today’s illusory inflows become tomorrow’s real investment—and tax bills match economic reality.
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Why is it important?
The paper is one of the first studies to use newly available OECD data that tracks the ultimate owner of FDI, not just the immediate investor. This lets us clearly separate true foreign investment from “round-tripped” domestic capital disguised as foreign. It also allows for meaningful cross-country comparisons over time—something that was nearly impossible with older data. Our analysis is especially timely as governments around the world negotiate new global tax rules, including a global minimum tax. By showing how domestic tax policies and legal loopholes fuel round-tripping, we provide concrete evidence that these reforms are urgently needed. The difference this work can make lies in helping policymakers, tax authorities, and international organizations better understand the hidden side of FDI flows. If adopted, our recommendations—more transparent reporting, stronger anti-avoidance laws, and greater international coordination—could help protect public revenues, level the playing field for firms, and improve the credibility of investment statistics worldwide.
Perspectives
Working on this publication was both eye-opening and motivating. I was struck by how easily domestic capital can be transformed into “foreign” investment on paper, simply by passing through tax havens. This practice not only clouds our understanding of economic reality, but also creates real social costs—lost tax revenue, weakened public trust, and skewed competition. I hope our research encourages policymakers and the wider public to look more critically at headline investment figures, and to recognize that not all “inflows” are what they seem. Ultimately, I believe that clearer, more honest data and fairer rules can help rebuild trust in global markets and ensure that the benefits of investment are widely shared.
Professor Imre Fertő
Eotvos Lorand Tudomanyegyetem
Read the Original
This page is a summary of: Round‐Tripping Foreign Direct Investments: What are the Main Factors?, Global Policy, May 2025, Wiley,
DOI: 10.1111/1758-5899.70014.
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