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The Tax Gap: Regulatory Responses and Implications for Institutional Investors

The regulatory environment around international tax avoidance continues to evolve at a rapid pace since our analysis in May 2015 on the tax gap of companies in the MSCI World Index. In our updated analysis, we identified 531 companies (out of 2,160 relevant companies) in the MSCI ACWI Index as of November 1, 2016, as having a large tax gap, paying an average rate of 14.3% versus the 31.8% that would be expected based on the jurisdictions where they generated revenue. Were the entire gap to be plugged by regulatory reform, MSCI ACWI Index constituents with a tax gap would have faced additional annual tax liabilities of up to USD 220 billion in the aggregate. However, with some countries either implementing or proposing cuts to the corporate income tax (CIT) rate through the next few years, the global tax gap may narrow to some extent.