Illicit Financial Flows, Trade Misinvoicing and Multinational Tax Avoidance: Exploratory Approach

Abstract

Illicit financial flows (IFFs) linked to corruption, criminal activity, and tax evasion are a growing source of concern. The Sustainable Development Goals (SDGs) contain a goal to reduce IFFs . On how to identify illegal money flows, and even less on how to measure them, there is currently no clear consensus. While it is obvious that tax fraud and evasion fall under the definition of "illicit," there have been various arguments made in favor of expanding the term to also cover legal behavior that lowers tax obligations. There are several justifications for this, including the lexical definition of "illicit" and the existence of unclear enforcement. One of the most convincing reasons from a practical standpoint has been the idea that there is a significant "grey zone" that reflects a lack of distinct boundaries between legal tax planning and tax evasion. This is frequently associated with the notion that huge multinational corporations engage in illicit financial transfers in areas of practice where transfer pricing and trade misinvoicing overlap. This study examines definitional concerns and trade misinvoicing estimates to determine whether these behaviors and problems are similar or dissimilar. This study contends that lumping together lawful and illegal behavior under a single term results in ambiguity and a loss of clarity.

Keywords: Illicit Financial Flow, Trade Misinvoicing, Transfer Pricing, Tax Avoidance, Multinational Trade, Corruption, Tax Fraud.