Misunderstandings about the scale of multinational tax avoidance are common. Last week’s example of this was perhaps the largest: Premium Times reported that Nigeria loses $1 trillion a year to tax evasion by multinationals. The claim was syndicated, repeated, and retweeted without question, including by organizations working on illicit financial flows, and several Members of the European Parliament.
$1 trillion is more than double the size of Nigeria’s whole economy and suggests additional corporate profits of nearly seven times the whole economy. Surely it cannot be true.
Premium Times has since updated the article removing the claim, but the syndications remain. And this is not the first time the $1 trillion figure has appeared. The same figure was widely reported in Nigeria last year (although some papers tried to make sense of it by reporting the figure as a trillion Naira).
So where does the trillion figure come from? Is it in dollars or Naira? What could it mean? Why is it so readily repeated? And can the confusion be cleared up so that no one else falls into the same misunderstanding?
The source seems to be a 2016 statement by the Information and Culture Minister, Alhaji Lai Mohammed, which several papers reported verbatim:
Where multinational companies operate in more than one country, it's quite easy for them to move profit from one territory to another territory where the tax law is very favourable to them. And what has happened over the years is that the revenue companies have lost a lot of money. As at the last count, over 1 trillion dollar has been lost over a period of time. And the revenue companies have found that they were losing more money in terms of tax evasion and avoidance than what they were even receiving as grants from multinational agencies.
So it is not just a typo between trillions and billions or dollars and Naira. But the reference to “revenue companies” is unclear. And where did he get this huge figure from?
Luckily there is a video of the speech on YouTube which solves the mystery.
The sound is not sharp, but if you listen and look closely you can see the Minister is not saying “revenue companies” at all, but “developing countries” (at just after 50 secs.).
If you are a follower of these big numbers you may have figured out the likely source and what he was talking about by now; $1 trillion is a widely cited (but problematic) estimate of illicit financial flows from developing economies. It is not a figure about Nigeria. Or about tax losses.
So the origin story for $1 trillion figure is a case of bad lip reading. But the explanation for why it proliferated is because it reflects the belief that there are absolutely huge sums of money for development at stake from cracking down on multinational tax avoidance, and that major companies are engaged in massive misinvoicing. The figure itself may be ridiculous but these myths are serious—they undermine both trust in revenue authorities and businesses, overheat disputes, and make it harder to judge practical progress on improving tax systems and compliance.
The real story in Nigeria last week was that the Cabinet agreed to sign up to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (‘The MLI’), together with more than 70 other jurisdictions. This is a big deal for preventing tax treaty abuse and improving dispute resolution. But to judge its impact we have to start treating these numbers like they matter—fact checking reports with the same seriousness applied to football games or recipes would help.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
Image credit for social media/web: James Malone