International tax havens are being used to funnel phantom investments worth the same as the combined annual GDP of China and Germany, according to a new study published by the International Monetary Fund (IMF) which sheds light on how tax-dodging multinationals are skewing global foreign direct investment (FDI) data.

The research, conducted by the IMF and the University of Copenhagen using data from the Organisation for Economic Co-operation and Development (OECD), shows that 38 percent of global FDI is "phantom in nature – investments that pass through empty corporate shells."

That 38 percent slice of FDI is worth around 15 trillion U.S. dollars. Eighty-five percent of that huge sum passes through just 10 economies, including Ireland, the Netherlands, Hong Kong Special Administrative Region, Singapore and Switzerland – all regions with low corporate tax rates.

Luxembourg, a country with a population of 600,000, hosts more FDI than the entire Chinese economy, according to the study. At four trillion U.S. dollars, that's 6.6 million U.S. dollars for each Luxembourger. 

Of course, that money isn't going into the pockets of each and every Luxembourger, and it's not being spent on investment projects in the principality. But why is such a huge sum passing through the tiny European state?

The study found that phantom investments are a form of financial and tax engineering "to minimize multinationals' global tax bills." And while corporate shells bring in large sums to their host countries through company registration fees and providing financial services, the huge amounts of money involved mean significant tax income losses for countries around the world.

The report says the phantom FDI phenomenon affects "virtually all economies," no matter their size or level of development. Across all economies (advanced, emerging markets, low-income and developing), average outflows towards overseas shell firms represent 25 percent of total FDI.

Phantom investments are not new, and despite increasing international coordination against the phenomenon, their share of total FDI has grown by around eight percent in the past decade.

Beyond damaging the tax bases of countries around the world, phantom FDI is also heavily distorting headline data. Genuine FDI should act as an indicator of international economic integration, in terms of job creation as well as productivity. But with phantom FDI representing nearly 40 percent of all overseas investment, the data could mislead policymakers and skew economic outlooks.

For the tax havens, the huge influx of money towards shell companies also heavily skews their own data. When Ireland saw its GDP grow by 26 percent in 2015, The Irish Times said while it may be a statistical fact, the huge growth was "clearly a fiction."

Huge multinational companies like Apple, Google and Facebook have registered assets in Ireland for tax reasons. As the Irish Times reported, having such assets registered in Ireland had a limited effect on the economy, but its "impact on the different components of our economic data is explosive."

The IMF report calls for more international cooperation on "dealing with taxation in today’s globalized economic environment." However, calls from leaders such as French President Emmanuel Macron for stronger oversight of multinationals and their use of tax havens have mostly fallen on deaf ears.

Macron called for a global tax on tech giants at the G7 Summit last month, describing as "crazy" the current setup which gives multinationals "a permanent tax haven status." However, the U.S. President Donald Trump is firmly against such legislation, after what Macron described as "very strong lobbying" by American tech giants.