Part two of a three-part series for Fair Tax Week 2026.
In the first part of this series we argued that the most overlooked measure of sustainable tourism is the one nobody puts on a certificate: how much of the value a visitor generates actually stays in the country they came to visit. We said that question is surprisingly hard to answer, and that the difficulty is the point. This piece is about why.
It is, we should say at the outset, mostly a story about things that are entirely legal. That is precisely what makes it worth telling. The problem is not a handful of rogue operators breaking the law – that’s a separate issue. It is an architecture, widely used and rarely examined, that allows the value generated by a visitor’s trip to a destination to be recognised, booked and taxed almost anywhere except the destination itself. Understanding that architecture is the difference between a sustainability claim that means something and one that is merely decorative.
A dependence rarely matched by retention
Start with how much these destinations rely on tourism. For Thailand, international tourism is worth well over two trillion baht in a strong year and supports close to a fifth of the economy once its wider effects are counted. For the Maldives, tourism accounts for around 30 percent of GDP and the majority of its foreign currency earnings. Across the small island developing states of the region and beyond, tourism receipts frequently represent anywhere from a quarter to three-quarters of total export earnings, according to UNCTAD.
That is an extraordinary level of economic dependence, and you might assume it translates into an equally large fiscal contribution. It often does not. The gap between how much these economies depend on tourism and how much of its value they retain is the subject of this piece. To understand it, we need to separate the part that is entirely legitimate from the part that is not, and then look at how the second part is engineered and what happens when someone investigates it.
Layer one: the legitimate baseline, and the line it hides
The first thing to say is that not all of a traveller’s spend should end up in the destination, and it is important to be clear about this before going any further.
When someone in London or Sydney books a Thailand trip, they usually buy it from an operator or travel agent in their own country. That seller does real work where it is based: it designs and packages the trip, markets it, takes the booking, carries the financial risk and looks after the customer. It earns a margin for that work, and that margin is legitimately earned in the source market and legitimately taxed there. This is simply the normal geography of cross-border commerce, and it is no more objectionable than a Thai exporter paying tax in Thailand on goods sold abroad. An outbound operator’s main control over the destination is which ground operator it chooses to work with, ethical or otherwise. The portion of the price it retains at home is not value being taken from Thailand; it was never Thailand’s to tax.
Economists call the share of tourism spend that does not remain in the destination “leakage,” and studies cited by UNCTAD and the UN Environment Programme have long put it at substantial levels in developing economies. But leakage is a broad bucket, and much of what sits inside it is perfectly proper: the seller’s margin in the source market, the cost of imported goods, international flights. Lumping all of that together and presenting it as money “lost” by the destination muddies the picture, and it points the finger in the wrong direction, at the very selling partners on whom destinations and honest local operators depend.
The line that actually matters runs somewhere else, and it is sharper. It is the line between value that was always going to be earned and taxed abroad, and value that arises from activity on the ground in the destination but is arranged to be captured offshore anyway. The first is legitimate. The second is the subject of the rest of this piece, and it is where a real problem lives.
It is worth saying plainly what we cannot say. We cannot put a number on how much corporate tax Thailand forgoes through the structures described below, and nor can anyone else, because the information that would allow it is not public. We know the sector’s weight in the economy: tourism accounts for close to a fifth of Thai GDP, and Thailand draws more than a quarter of its total tax revenue from corporate income tax, one of the highest shares in the world. What we do not know, and what no certification or public filing currently reveals, is how much of the profit generated on the ground here is recognised and taxed here. That missing number is not a gap in our argument. It is the argument.
Layer two: the architecture that captures value offshore
Now follow the money once it reaches a company that is genuinely operating on the ground in the destination: an inbound operator or destination management company that runs the trips, employs the guides, manages the vehicles, uses the roads and the national parks, and deals with local suppliers. Unlike the source-market seller, this is a business physically present in Thailand, drawing directly on what Thailand provides. The question is how much of the value it generates here is actually recognised and taxed here, and for many of the large multinational operators the answer is engineered to be: as little as possible. This is the second layer, and it is where the local tax base is quietly narrowed. Several mechanisms do the work, and none of them requires anyone to break a rule.
Where the revenue is recognised. A destination management company is a low-margin, low-asset services business. When a large international operator sells a Thailand trip out of London, Melbourne or Toronto, the gross revenue is typically recognised in the source-market entity, not the Thai one. The Thai operating company that actually runs the trip, employs the guides, manages the vehicles and deals with local suppliers, is paid a fee for those services, often structured as cost plus a modest margin. So the taxable profit that arises in Thailand is calculated not on the value of the holiday, but on the thin margin of an internal services contract. The destination’s claim on the tax generated by its own scenery, culture and hospitality is shallow from the very first step.
Intra-group charges. On top of that already narrow base, the local entity is frequently charged for things provided by the wider group: management fees, brand royalties, access to booking platforms and IT systems, regional support services. Some of these charges are entirely legitimate. A global booking platform or brand can represent real investment that genuinely lives elsewhere, and a group is entitled to recover its value. The difficulty is that each charge is also a deduction against Thai taxable profit and a payment to a group entity elsewhere, and where the prices on these internal transactions are set aggressively, the Thai subsidiary can be made to look as though it barely breaks even while the profit accumulates in a lower-tax jurisdiction. This practice, transfer pricing, is legal and ubiquitous; the question is always whether the internal prices reflect genuine economic value or are set to move profit, and from outside the company that is extremely hard to tell. The landmark study by Tørsløv, Wier and Zucman, published in the Review of Economic Studies, estimates that around 36 percent of all multinational profits globally are shifted to tax havens each year, much of it through exactly these channels.
Regional holding structures. Singapore and Hong Kong operate tax systems that make them efficient places to base a regional headquarters and to aggregate group profit. There is nothing improper about choosing an efficient corporate structure. But the effect is that group-level profit can sit in a low-tax hub while the operating companies in destination countries report slim results, and the consolidated accounts tell a very different story from the country-by-country reality on the ground. This is precisely why genuine tax transparency requires public country-by-country reporting: without it, you simply cannot see the gap.
Service-business profit is unusually mobile. Underlying all of this is a structural feature of the destination management business. Unlike a hotel, which has a building, land and capital visibly invested in a specific country, a tour operator’s value can plausibly be attributed to intangibles: a global brand, an IT and booking platform, international supplier relationships, accumulated know-how. Intangibles can be owned almost anywhere. And because tax broadly follows where value is judged to be created, a business whose value lives in intangibles has far more latitude to decide where its profits arise. That is the structural reason destination management companies are especially well placed to minimise host-country corporate tax. It is also, as we will see in part three, the reason the sustainability certification industry has had almost nothing useful to say about any of this.
There is an important point hiding in the combination of these mechanisms, and it is the one we raised in part one. Whether profit is shifted out of the country after it is booked, or revenue is arranged so that it is never fully booked locally to begin with, the outcome is the same: far less value is retained in the host country than the on-the-ground activity would suggest. Two routes, one destination. And both are made far harder to see when the ownership of the entities involved is itself obscured, through opaque shareholding, nominee arrangements and cross-border structures that make it difficult to establish who genuinely owns and profits from a business at all.
This is the point at which a legitimate commercial choice becomes something harder to defend. A company that operates in a destination, uses its infrastructure, trades on its culture and landscape, and publicly claims to contribute to its communities, has what is sometimes called a social licence to operate: an implicit understanding that it gives back something proportionate to what it takes. An operator that is physically present in Thailand while arranging for the value it creates here to surface somewhere else is, in our view, stretching that licence further than it should go. It is not the same as a source-market seller keeping its own margin at home. It is a business extracting value from the very place it asks to be trusted as a steward of. Tax is not the only thing such a company owes a destination, and it is not the whole of economic sustainability. But it is the part that is hardest to perform and easiest to verify, and when it is missing, the rest of the sustainability story rests on shakier ground than it appears to.
Layer three: this is not a theory
It would be easy to dismiss all of the above as suspicion. So consider what happens when a tax authority actually goes looking, and here we have an unusually clear example from an impeccable source.
The joint OECD and UNDP programme Tax Inspectors Without Borders embeds experienced auditors from one country’s tax administration alongside another’s to build capacity on complex international cases. In the Maldives, the Maldives Inland Revenue Authority ran a Tax Inspectors Without Borders programme that focused squarely on transfer pricing, with the Australian Taxation Office as its partner administration. According to the OECD and UNDP’s own published case study, between August 2018 and July 2020 the authority and the visiting expert worked together on eleven audit cases, of which eight were in the tourism, hospitality and construction sectors. The casework covered exactly the mechanisms described above: intra-group services, intra-group loans, and transactions involving intangibles. The programme was considered valuable enough that a second phase, launched in 2021, focused specifically on the tourism and hospitality sector again.
The outcomes of that work tell their own story, and it is worth being precise about them, because the precision is revealing. A large part of what the audits produced was not immediate tax collection but income adjustments offset against losses the companies were carrying forward. As the OECD and UNDP case study explains, adjustments absorbed by carried-forward losses do not generate tax straight away; what they do is shrink the pool of accumulated losses a company can use, so that its future profits become taxable sooner. Read that back through this series and the significance is hard to miss. These were businesses operating in one of the most tourism-dependent economies on earth, and the audits found them sitting on accumulated losses substantial enough to absorb the adjustments. A sector that generates enormous visitor revenue, populated by entities that report losses large enough to wipe out years of taxable profit, is the pattern this entire series describes, documented by a tax authority that went and checked. We should be careful about what this does and does not show. It does not imply wrongdoing by any individual company, and it does not mean the same outcomes occur in every destination or in Thailand specifically. The Maldives evidence is valuable precisely because it is rare: it illustrates how this structure can create the kind of risk that tax authorities exist to monitor, in exactly the sector this series is about.
The Maldives is not unusual because this behaviour exists there and nowhere else. It is unusual because it had the capacity, with international help, to investigate it. Most destination countries do not. The IMF, OECD and World Bank have repeatedly noted that lower and middle-income economies are disproportionately exposed to profit shifting precisely because their tax administrations lack the specialist resources to audit complex multinational structures. The behaviour is widespread; the enforcement is rare. That asymmetry is the heart of the problem.
What Thailand has built, and where it stops
Thailand is not a passive bystander in this, and it would be wrong to suggest otherwise. Over the past several years it has built a genuine transfer pricing regime, broadly modelled on international good practice. Since 2019, Sections 71 bis and 71 ter of the Revenue Code have given the Revenue Department explicit power to adjust the income and expenses of related companies where it believes their dealings have been structured to shift profit. Companies with annual revenue of at least 200 million baht that transact with related parties must file a transfer pricing disclosure form alongside their corporate tax return, and the Revenue Department uses that form precisely to select audit targets. Where an audit finds non-arm’s-length pricing, the penalties run to as much as 100 percent of the tax shortfall. Thailand has also adopted country-by-country reporting in line with the OECD’s framework, and has moved to implement the global minimum tax on large multinationals.
These are real tools, and the Revenue Department’s own audit-risk criteria describe the profile we have been discussing almost exactly: consistent losses, significant profit fluctuations, large volumes of related-party transactions, and dealings with low-tax jurisdictions are all flags for scrutiny. On paper, an international DMC routing profit offshore through management fees and holding structures is the kind of taxpayer the system is designed to catch.
But look at where the strongest tool stops. Country-by-country reporting, the single disclosure that would actually lay bare how a multinational group splits its profit and tax across the countries it operates in, applies in Thailand only to groups with consolidated revenue of at least 28 billion baht, roughly three-quarters of a billion US dollars. Very few tour operators or DMC groups reach that threshold, and certainly very few of the specialist inbound operators that actually run trips in destinations like Thailand. The very mechanism that would reveal cross-border profit shifting in this sector is calibrated for the largest corporate groups, and the overwhelming majority of the tourism industry sits comfortably beneath it. The disclosure form that smaller operators do file is a national document seen only by the Revenue Department; it is not public, and it tells a traveller, a competitor or a certification body nothing. So Thailand has the architecture, and the architecture mostly does not reach the businesses this series is about. The result is that whether any given international operator pays a fair amount of Thai corporate tax on the value it extracts from Thailand remains, for almost everyone outside the Revenue Department, simply unknowable.
The unfair advantage hiding inside all of this
There is a competitive dimension that deserves to be named plainly, because it affects every honest operator in the market.
Where a multinational destination management company uses the mechanisms above to artificially thin the taxable profit it reports in the host country, it gains a structural cost advantage over operators that pay their fair share locally. In that case, call it what it is: a tax avoidance subsidy. The margin freed up by minimising local corporate tax can be spent undercutting compliant competitors on price, outbidding them for the best local staff, or outspending them on marketing. The advantage has nothing to do with running a better business. It is an accounting dividend, available at scale to those with the international structure to capture it, and unavailable to the locally rooted operator who simply pays what they owe where they earn it.
So when these companies present themselves, as many of the largest do, as champions of sustainable and responsible travel, the claim deserves scrutiny. A business can run an admirable plastic-reduction programme and a community project and still, through its corporate structure, contribute far less than it should to the revenue that funds the schools, clinics, rangers and infrastructure those same communities depend on. Sustainability that stops at the visible and the photogenic, while the fiscal contribution thins out into a regional holding company, is not the full picture. It may not even be the important part of it.
None of this is to romanticise the purely domestic market. Plenty of locally owned operators evade tax too, through cash dealing and informal bookkeeping, and that is just as corrosive to a destination’s tax base as cross-border profit shifting. The argument here is not foreign versus local; it is fair contribution versus extraction, in whatever form it takes. What makes the multinational version distinctive is that it is lawful, sophisticated, and dressed in the language of sustainability, which is precisely why it deserves naming.
A fight happening right now
One last point, because it bears on whether any of this will change. The question of how to define and measure illicit financial flows, the category that captures cross-border tax abuse, is being negotiated at the United Nations as we write. The Tax Justice Network reported in late 2025 that developing countries, led in part by India, are pushing for a broad definition that would capture aggressive profit shifting of the kind described here, while a narrower, OECD-favoured definition would exclude much of it. The outcome matters because one of the Sustainable Development Goals, target 16.4, commits the world to significantly reducing illicit financial flows, and you cannot reduce what you refuse to measure. If the narrow definition prevails, the losses suffered by tourism-dependent destinations like Thailand may never even appear in the official figures.
That is the landscape. Value that genuinely belongs to the destination is recognised offshore, thinned out as it passes through intra-group charges, and parked in structures that almost nobody can see. The tools to expose it exist but rarely reach the tourism sector, and the international rules that would define the problem are still being fought over.
Which leaves a question for the part of the industry that markets itself on sustainability. If the economic contribution of a tour operator to its host country is this central, and this obscured, what exactly are the sustainability certifications checking when they certify a company as responsible? In the final part of this series, published alongside an announcement we are proud of, we went and read the standards to find out.
This is part two of a three-part series. Part one set out Thailand’s fiscal trajectory and why corporate income tax matters for the region. Part three examines the tax-conduct content of the major tourism sustainability certifications and announces a first for the international tourism sector.