One of the big flaws in the U.S. corporate income tax is that it encourages companies to shift revenue, profit, operations, investment and employment to other countries. The Republicans say a big benefit of their tax reform plan is that it would stop companies from doing that.

But the Republicans are wrong. Their plan would do a bit — but not enough — to discourage American companies from continuing to use tax gimmicks to avoid U.S. taxes by pretending that they earn their profits in other countries. And it wouldn’t do much to discourage companies from shifting their investment, employment and operations out of the United States, or giving up their U.S. residence through a corporate ownership inversion.

In fact, the Republican plan could make it easier.

Opinion Journal: How to Talk About Tax Reform

Everyone on both sides of the aisle agrees that the U.S. corporate tax system needs to be reformed, because the current worldwide system encourages a lot of economically wasteful tax avoidance. We need a fair tax system that will raise significant revenue without harming American businesses or the U.S. economy. It’s not an easy task.

But while the Republican plan unveiled Thursday would lower the corporate rate to 20% from 35% and establish a territorial tax system, it wouldn’t do much to stop the tax-avoidance gimmicks. Why? Because there would still be an incentive to shift profits to countries that have a tax rate that’s even lower.

A few weeks ago, House Speaker Paul Ryan argued that the 20% rate would have prevented an American company, Assurant, from moving its legal headquarters to Bermuda, which doesn’t impose any corporate income tax at all.

But the last I checked, 20% is higher than 0%. The Trump-Ryan-Brady plan wouldn’t eliminate the incentive for U.S. companies to shift their operations or to shift their profits using creative transfer pricing techniques.

Nearly every tax expert who’s studied this issue agrees that the problem identified by Ryan would remain even after his bill is approved.

William Gale, co-director of the nonpartisan Tax Policy Center, says the Republicans’ unified framework “would encourage [U.S. companies] to ship jobs, capital, and profits overseas.” Similarly, Donald Marples and Jane Gravelle of the Congressional Research Service concluded that proposals like the Trump-Ryan-Brady plan “could worsen the profit-shifting that already exists among multinational firms.”

Edward Kleinbard argues that the territorial tax system of Trump-Ryan would reward successful transfer-pricing gamers as “instant winners” of the tax lottery.

Here’s how this works: U.S. corporations have sheltered more than $2.6 trillion in offshore profits, much of it booked in dubious foreign subsidiaries that are largely an accounting fiction. A lot of these profits are earned on work that’s done in the United States, but the profits are attributed to a foreign subsidiary to avoid taxes. The U.S. Treasury loses more than $100 billion a year, according to Kimberly Clausing’s research.

U.S. tech and pharmaceutical companies have been particularly aggressive in fictional accounting that attributes ownership of the company’s intellectual property — patents, copyrights and trade secrets — to a foreign subsidiary located in a low-tax country. Using transfer prices between units of the same company, revenue and profits earned by the company can be transferred to the foreign subsidiary for tax purposes.

The federal tax that is owed on these profits is deferred as long as the corporation doesn’t “repatriate” the funds into the U.S.

In practice, corporations are able to use these accumulated profits indirectly for almost any purpose, without legally repatriating them and triggering the tax. The funds aren’t “trapped” overseas. The hoard of cash overseas isn’t preventing any company from investing in America.

The figures are staggering. At least 366 of the Fortune 500 companies have established subsidiaries in tax-haven countries. The companies pay an average tax rate of 6.1% on their “foreign” earnings, evading a cumulative $750 billion in federal taxes, according to a study by the Institute on Taxation and Economic Policy.

Some of these foreign subsidiaries are legitimate businesses, with actual operations that produce actual goods and services. But many are an accounting fiction, created for the sole purpose of evading taxes. For instance, U.S. companies claim to earn profits in Bermuda that are 18 times larger than the island’s gross domestic product.

These U.S. companies claim to earn 43% of their foreign profits in just five tax-haven countries — Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland — yet these five countries employ just 4% of these companies’ foreign workers and have only 7% of their foreign investments.

Apple AAPL, +0.89% has sheltered more money aboard than any other, about $250 billion, allowing it to evade paying $77 billion in taxes to Uncle Sam.

According to a Senate investigation, Apple structured two subsidies in Ireland in a way that shielded it from paying taxes to either the U.S. or Ireland. The European Commission found that Apple’s creative accounting allowed the world’s most profitable company to pay a tax rate of just 0.005% on its 2014 European earnings, and ordered Apple to pay $14.5 billion in taxes to Ireland.

The Trump administration claims its plan would reduce the incentives to create these fictional subsidiaries because it would reduce the U.S. statutory rate to 20%. With a lower U.S. rate, companies wouldn’t save as much money as before by setting up a post-office box in a tax haven.

But as the Apple example shows, even Ireland’s 12.5% tax rate won’t keep companies from trying to shelter their income.

Nothing in the Trump-Ryan plan would prevent this kind of monumental tax dodging. In fact, it would tell corporations to go right ahead.

Instead of closing this loophole, the Republican tax plan would attempt to force companies to pay a one-time “repatriation tax,” a tiny fraction of what they now owe. Going forward, the Republican plan would establish a territorial tax system, and invite corporations to shift their profits to low-tax foreign jurisdictions. Even with a minimum 10% tax on the profits of “high-profit” foreign subsidiaries, the Republican plan would give U.S. corporations the green light to shift profits.

Moving to a territorial tax system is the wrong move. The original House Republican tax plan had a better idea: Taxing corporate income based on the location of sales, not location of ownership. That’s the system most U.S. states use to tax corporate income within their borders. But powerful corporate interests killed that idea because it would have hurt some companies, especially retailers.

Since we can only manage to reform the corporate tax system once every 30 years ago, it’s important that we get this right now. We must make sure that all corporations, no matter where they are based, pay their fair share of taxes.

Now read:Trump’s tax plan would create a nation of cheaters