The "Phantom" FDI

The IMF's WEO talks about "phantom investments" or FDI which seeks to benefit from tax avoidance. It writes,

In practice, FDI is defined as cross-border financial investments between firms belonging to the same multinational group, and much of it is phantom in nature—investments that pass through empty corporate shells. These shells, also called special purpose entities, have no real business activities. Rather, they carry out holding activities, conduct intrafirm financing, or manage intangible assets—often to minimize multinationals’ global tax bill. Such financial and tax engineering blurs traditional FDI statistics and makes it difficult to understand genuine economic integration... Globally, phantom investments amount to an astonishing $15 trillion, or the combined annual GDP of economic powerhouses China and Germany... In less than a decade, phantom FDI has climbed from about 30 percent to almost 40 percent of global FDI...

Today, a multinational company can use financial engineering to shift large sums of money across the globe, easily relocate highly profitable intangible assets, or sell digital services from tax havens without having a physical presence. These phenomena can hugely impact traditional macroeconomic statistics—for example, inflating GDP and FDI figures in tax havens. Prominent cases include Irish GDP growth of 26 percent in 2015, following some multinationals’ relocation of intellectual property rights to Ireland, and Luxembourg’s status as one of the world’s largest FDI hosts.

Sample this,

According to official statistics, Luxembourg, a country of 600,000 people, hosts as much foreign direct investment (FDI) as the United States and much more than China. Luxembourg’s $4 trillion in FDI comes out to $6.6 million a person... Interestingly, a few well-known tax havens host the vast majority of the world’s phantom FDI. Luxembourg and the Netherlands host nearly half. And when you add Hong Kong SAR, the British Virgin Islands, Bermuda, Singapore, the Cayman Islands, Switzerland, Ireland, and Mauritius to the list, these 10 economies host more than 85 percent of all phantom investments.

This from the FT.

This should be a matter of concern to countries like India, which aggressively court foreign investments and tweak policies to encourage FDI. Already, only a tiny share of FDI is coming to job creating or export-generating manufacturing activities. What monitoring mechanisms do we have to assess the extent of FDI being driven by profit shifting and other financial arbitrage considerations?