New Delhi: Ten small economies including Luxembourg, the Netherlands, Hong Kong SAR, Switzerland, Singapore, and Mauritius host more than 85 per cent of all phantom investments estimated at USD 15 trillion globally, according to a report published by the International Monetary Fund (IMF).
Globally, phantom investments amount to a huge USD 15 trillion, or the combined annual gross domestic product (GDP) of China and Germany, said the report authored by Jannick Damgaard, Thomas Elkjaer, and Niels Johannesen.
And, despite targeted international attempts to curb tax avoidance...phantom FDI (foreign direct investment) keeps soaring, outpacing the growth of genuine FDI.
In less than a decade, phantom FDI has climbed from about 30 per cent to almost 40 per cent of global FDI. This growth is unique to FDI," said the report.
Phantom FDI refers to investments that pass through shell companies that have no real business activities and are tailor-made to cut tax liabilities.
It noted that according to official statistics, Luxembourg, a country of 6 lakh people, hosts as much foreign direct investment (FDI) as the United States and much more than China.
Luxembourg's USD 4 trillion in FDI comes out to USD 6.6 million a person. FDI of this size hardly reflects brick-and-mortar investments in the minuscule Luxembourg economy.
"So, is something amiss with official statistics or is something else at play?," it added. FDI is often an important driver for genuine international economic integration, stimulating growth and job creation and boosting productivity through transfers of capital, skills, and technology.
