New evidence of the strong link between corporate tax rates and cross-border investment has emerged in the fDi Report 2013, an annual assessment of cross-border investment based on the fDi Markets database from the Financial Times.
The 2013 edition of the fDi Report shows that multinational enterprises minimise their tax burden through overseas operations, and analyses how this relationship impacts on foreign direct investment (FDI).
The report also identifies the latest FDI trends across the globe. The slow recovery in global green field FDI in 2011 ground to a halt in 2012, with the second biggest decline in FDI since the start of the world recession. But although all world regions experienced a decline in FDI, a number of countries experienced strong growth in inward investment projects: Chile, Spain, Indonesia, Poland and Oman.
Asia-Pacific remained the leading regional destination for FDI in 2012, with 3,740 projects tracked, increasing its global market share to 31.72 per cent.
Chile replaced Brazil this year as the star performer. In North America, most states and provinces experienced a decline in FDI, with the US state of Michigan the outstanding exception, achieving 60 per cent growth in FDI projects. Alabama also achieved strong growth.
In Europe the UK performed slightly better than the other countries as a whole, increasing its market share of the FDI into the region to 20.87 per cent in 2012, the highest of any European country.
This year’s fDi Report also has a focus on the BRIC (Brazil, Russia, India and China) economies. In recent years these countries have attracted more than 22 per cent of global FDI projects, but their share declined in 2012 to 17.6 per cent.
According to the report, governments face a huge challenge in ensuring that multinational enterprises pay the tax due without undermining their country’s attractiveness for FDI. Coordinated multilateral action would seem the only way to achieve this.With a challenging economic and political environment, the global recovery in FDI stopped in 2012. The number of FDI projects declined by 16.38 per cent in 2012, in contrast with the 8.54 per cent increase in 2011
FDI into China, India and Russia peaked in 2008 and has not recovered since. FDI into Brazil, after a record high in 2011, experienced a decline in 2012. The number of FDI projects in China and Russia in 2012 was the lowest in the past decade.