In 2019 to 2020, data from over 7,500 multinational corporations showed that there were discrepancies between where profits were reported and where economic activities actually took place. This led to a reduction in the tax base and profit shifting, which highlighted the need for international tax agreements. According to the Organization for Economic Cooperation and Development (OECD), profits taxed at low rates occurred in both high and low tax burden countries. More than half of income with an effective rate below 15 percent was in economies with higher tax rates.
The OECD initiated the BEPS Project in 2015 to study multinational tax engineering and reduce their tax burdens. In 2020, corporate tax revenue represented an average of 15.1 percent in the 116 jurisdictions for which there is data, with Mexico around 20 percent. Base erosion and profit shifting (BEPS) are part of companies’ strategies to take advantage of discrepancies between national tax systems and shift profits to places with little to no taxation where they conduct minimal economic activity, thus avoiding corporate taxes.
In its latest update on corporate statistics for 2020, the OECD shows that corporate tax revenue represents an average of only 3 percent of GDP in the analyzed jurisdictions, with Mexico around 4 percent. Despite legal corporate income tax rates remaining stable at around 21.1 percent from 2021 to