About the indicator

When a country has lax rules on taxing the profits booked in low-tax countries by foreign companies owned and controlled by local parent companies, these local parent companies can exploit loopholes to shift their profits into corporate tax havens through their foreign-controlled companies and underpay tax. They can also reinvest their profits in their foreign companies, indirectly enriching themselves with profit that should have been taxed at home before being reinvested. This indicator assesses if the country applies robust non-transactional controlled foreign company rules to protect against tax abuse. The rules treat the profits of a local parent company’s foreign companies as income directly earned by the local parent company, even when the profits are not distributed up the ladder.