About the indicator

When a country gives corporate income tax breaks to multinational corporations operating in specific economic sectors, this special treatment can be abused to shift profit and underpay tax owed elsewhere in the world. This indicator measures if the country gives profit-based tax exemptions to companies in certain economic sectors, such as manufacturing or agriculture, and for passive income through investment activities, including financial and real estate investments. To avoid unfairly penalising countries with sector-specific industrial policies, the indicator differentiates between less harmful cost-based exemptions (granted based on real capital investment or staff salaries) and tax-abuse prone profit-based exemptions (given simply because a company engages in for-profit activities).