Working Paper 214
There is a growing recognition that offshore structures fundamentally distort the world map of foreign direct investment (FDI). This paper advances efforts to map the ultimate owners hidden in official data behind offshore or ‘phantom’ FDI by using a novel methodology to deconstruct the ultimate origins of FDI in the US, UK, France, Germany, Italy, Brazil, Russia, India, and China. In contrast to previous studies, this methodology unpicks distortions created by the offshore re-domiciliation of corporate groups at the parent level, in addition to subsidiary level, by determining the ‘true’ ultimate nationality of more than 6,000 offshore-domiciled group ultimate owners (GUOs) in Orbis. By combining this offshore GUO ‘census’ with a novel Monte Carlo simulation approach to integrating microlevel Orbis data with macro-level official FDI data, the analysis estimates a 4D matrix of inward FDI in major world economies cross-disaggregated by (1) host economy, (2) immediate investing, (3) ‘ostensible’ ultimate investing, and (4) ‘true’ ultimate investing country. The results show that offshore arbitrage is extremely widespread at the multinational group parent as well as subsidiary level, with nearly half of all offshore or phantom FDI found to be generated by ‘inverted’ groups with an offshore-redomiciled parent in Orbis. These inverted groups are found to be disproportionately involved in offshore FDI round-tripping in their own home countries, substantially increasing the latter’s estimated impact across not only the developing but the developed world – with the US and Italy, along with Russia, China, and India, shown to be the largest ultimate sources of offshore FDI in themselves. This has important implications for our understanding of global FDI patterns, and calls into question basic assumptions about the so-called ‘home’ country level in the context of multinational corporate tax governance and reform.
