Tax Havens Research Articles

Application of CFC Rules on Trust Equity in Low-Tax Jurisdictions

Application of CFC Rules on Trust Equity in Low-Tax Jurisdictions

Discrimination Against Puerto Ricans in the Puerto Rican Housing Market: Evidence From a Preregistered Audit Experiment

Abstract Do locals discriminate against themselves by favoring foreigners with higher expected purchasing power? Drawing on theories of prejudice, discrimination, and colonialism, I argue that in colonized and post-colonial countries, local home sellers discriminate against local potential homebuyers while favoring foreigners with expected higher purchasing power, anticipating a more profitable transaction. I support this argument with evidence from a preregistered online audit study targeting discriminatory attitudes toward local home buyers. In the study, fictitious home buyers with distinctive language and ethnic names emailed 1,512 home sellers (realtors and homeowners) across all municipalities in Puerto Rico. Home sellers reported more houses available to Americans and invited them to more house showings than Puerto Ricans. My estimates indicate that ethnic discrimination exists in the Puerto Rican housing market. These findings provide new insights into ethnic dynamics in colonized and post-colonial societies and underscore concerns about recent legislation that turned Puerto Rico into a tax haven.

Harnessing network power: Weaponised interdependence in global tax policy

AbstractFor decades, global tax policy has grappled with the challenge of mobile capital, failing to harness the regulatory potential of network power. This oversight has allowed tax havens to flourish, and multinational corporations and wealthy elites to circumvent state authority, undermining national fiscal policies and democratic capacity to meet grand societal challenges, such as climate change and inequality. But recent regulatory innovations pave a different way forward. This article spotlights the dynamics of ‘weaponized interdependence’, suggesting a critical role for strategically targeting global corporate and financial networks in reinvigorating action against tax havens, tax avoidance and tax evasion. Identifying and exploiting network chokepoints – financial institutions, corporate subsidiaries and expert intermediaries – can empower states to reassert their sovereignty and counterbalance the structural advantages of global capital. This approach helps us understand how and why recent regulatory measures have effectively countered financial secrecy, profit shifting and sanctions evasion, repairing public finances and restoring democratic integrity. In an age where weaponised interdependence is predominantly linked to national security, this recasting of global tax policy highlights a progressive path for using network power to develop effective global economic frameworks, strengthen democratic capacity and address contemporary challenges.

COMPLIANCE TRIBUTÁRIO INTERNACIONAL: DESAFIOS E ESTRATÉGIAS NA GESTÃO DO IVA E O USO DE PARAÍSOS FISCAIS

The complexity of the global fiscal landscape, marked by the variety of laws, regulations, and management and corporate strategies of multinational corporations. This article investigates international tax compliance, focusing on its relationship with Value Added Tax (VAT), tax havens, and tax law. The objective is to assess how compliance with tax obligations in multiple jurisdictions impacts multinational companies, particularly with regard to VAT, whose complexity requires rigorous management to avoid penalties. Using a qualitative approach, the study analyzes legislation, international treaties, and business practices, highlighting the challenges of harmonizing tax efficiency with legal compliance. The results indicate that the use of tax havens, although offering tax benefits, exposes companies to high risks due to increasing global regulatory scrutiny. Corporations must act cautiously when designing their global activities, ensuring that their tax planning strategies are not seen as abusive, illegal, or evasive, to avoid future problems. It is concluded that an effective tax compliance strategy, aligned with international tax law, is essential to mitigate risks and ensure business competitiveness in a dynamic and strictly regulated global environment.

Forecasting disorientation in the tax avoidance map: Tax haven subsidiaries and analyst forecasts

In the context of economic globalization, China has actively encouraged its enterprises to “Go Global” to enhance their core competitiveness. However, in recent years, many companies have been drawn to the unique features of tax havens, establishing subsidiary in these regions to exploit regulatory and institutional arbitrage rather than focusing on genuine production and operations. This study uses panel data from Chinese listed companies from 2007 to 2022 to investigate the impact of tax haven subsidiary layout on analyst forecast accuracy and the underlying mechanisms. Our findings show that tax haven subsidiary layout significantly reduces analyst forecast accuracy. This negative effect is primarily driven by increased information asymmetry and heightened operational risks caused by tax haven subsidiary layout. Moreover, the impact is more pronounced in firms with higher controlling shareholder tunneling, lower media attention, stronger product market competition, and weaker tax enforcement. Our research contributes to a deeper understanding of the adverse effects of tax haven subsidiary layout, offering crucial insights for promoting efficient capital flow and sustainable economic development in emerging markets.

A global assemblage of tax haven clusters: profit shifting, tax dodging and money laundering

In this paper we explore a selection of tax haven clusters in the US and Europe as diverse but recognisable species of some fifty of the phenomena worldwide that have been seldom studied from an economic geography or spatial planning viewpoint. We treat the objects of study as being almost perfect expressions of the classical, canonical cluster configuration. They are: spatial agglomeration, untraded as well as market dependencies, small and medium-sized enterprise status, associative or agentic relationships, interaction with large firms inside or outside the cluster and knowledge acquisition, advisory, consultancy and knowledge translation services from research and innovation intermediaries - public and/or private. However, we think their characteristics demand further recognition of the interactive and often innovative communication networks by means of which these cluster incumbents interact globally. This is because they are set within a worldwide system that can be conceptualised as an exemplar of the well-known construct known as an ‘assemblage’ (Deleuze and Guattari, 2004a). Unlike more recent treatments from De Landa (2019) and others, we try to concentrate on the motive power of the ‘agentic’ impulses of ‘desire’ that motivate human action (e.g. regarding ‘God, Gold or Glory’ as commonly-rehearsed motivators for colonialism of various kinds). It has been more common to use ‘assemblage theory’ to analyse the interlocking ‘machinic’ elements of complex systems like power networks or laboratory interactions. To unlock the mysteries of system interlocking in our selected tax havens, which comprise Wilmington, Delaware (US), Ireland (EU) and Gibraltar (former EU, now British Overseas Territory) – post-Brexit - occupying a ‘quantum’ space ‘in which both the colonial and post-colonial find expression’ (Perera, 2021). Methodologically, we seek ‘pattern recognition’ to identify the lineaments that explain these clusters and the ‘agentic’ actors that motivate them.

A Financing Constraints Paradox? Internal Finance and Capital Structure Link for Tourism Firms: Asian Emerging Market evidence

The aim of the study is to investigate the relationship between the internal financial and capital structure of an organization in the travel and tourism sector. The study shows how financial constraints on tourism companies affect their ability to finance themselves. The study also shows a relationship between tax shielding and financial leverage. This study analyzes panel data collected over a 21 year period, from 1998 to 2019, from over 100 publicly traded tourism companies in three Asian countries. A panel data methodology and the generalized method of moments estimation (GMM) were used in this empirical study. To support our hypothesis, using a generic method to evaluate parameter estimation will be our most effective method to improve the literature. Overall, the results show that financially stressed tourism firms use their option of debt-free tax avoidance to increase leverage. There is also a positive correlation between tax haven and leverage for firms with limited resources. The correlations between financial leverage and corporate debt supported by the results theoretically support the pecking order. By providing useful insights into the tax shielding of non-debt, which is significantly correlated with leverage for firms operating in tourism, this study closes the gap in firms’ capital structure decisions regarding access to finance. JEL Classification: G0, G01, L25

Chinese companies in tax havens

Chinese companies in tax havens

Investment in tax haven jurisdiction by Indian MNCs: a conceptual study

PurposeThis study aims to understand the investments made by Indian MNCs in different tax havens to optimize their tax liabilities. The study also aims to provide insights into the conceptual framework of such practices, highlighting potential benefits and risks and providing policy recommendations that promote transparency, fairness and sustainable economic practices.Design/methodology/approachThe study involves a combination of quantitative and qualitative approaches. The quantitative aspect analyzes investments made by Nifty 50 companies in tax haven jurisdictions from the financial data of the parent company from 2019 to 2023. The qualitative aspect involves a conceptual framework developed from previous studies and examining the role of various organizations in combating tax avoidance. This mixed-method approach enables a comprehensive understanding of the motivations, impacts and regulatory responses related to the use of tax havens.FindingsThe paper provides conceptual and descriptive insights on investments made by Indian MNCs in tax havens during 2019–21 to save tax. The study suggests that while investing in tax havens, businesses give more priority to ease of doing business and other considerations such as a lower tax rate.Research limitations/implicationsThe present study suggests policymakers about the effectiveness of current tax laws and their enforcement, highlighting loopholes and potential avenues for modification.Originality/valueThis paper assesses the reasons for Indian MNCs starting subsidiaries and making investments in different tax haven jurisdictions and suggests appropriate measures to avoid the menace of tax havens.

Automatic for the (tax) people: information sharing and cross-border investment in tax havens

Summary This paper examines the impact of international automatic exchange of information (AEOI) treaties on cross-border investments in tax havens. Using a restricted version of the BIS Locational Banking Statistics, we find that AEOIs significantly reduced cross-border deposits. A sectoral breakdown assessment reveals that households were the key driving force behind this contraction. However, we also document evidence of households’ deposits shifting to non-AEOI haven countries and larger deposits by non-bank financial institutions between tax haven countries, suggesting an increased use of shell corporation networks since AEOI introduction. Extending the analysis to portfolio and direct investment, we observe that changes in investment patterns vis-à-vis tax havens are consistent with a significant impact of AEOI treaties on these forms of cross-border investment.

Does the Source of FDI Matter? The Case of Tax Havens

Abstract This paper estimates the benefits of FDI for firm performance, differentiating source countries between tax havens and non–tax havens. Using longitudinal data on more than 300,000 initially domestic firms in Ukraine between 1999 and 2013 and employing propensity score matching and panel data methods, this study finds that firms acquired by non–tax haven foreign investors experience substantial increases in employment, productivity, exports, and wages, but the gains are much lower and shorter-lived for firms receiving FDI from tax havens. These findings, based on econometric analysis of nearly the universe of Ukrainian businesses, are consistent with macroeconomic studies and anecdotal evidence that much of the tax-haven FDI in Ukraine actually represents domestic ownership channeled through offshore companies. This “round-trip FDI” results in negligible effects on firm performance and, at a macro level, it overstates the amount of genuine FDI flows into Ukraine.

Global tax avoidance and evasion: A landscape through insights from a systematic literature review and bibliometric analysis

This research aims to comprehensively investigate contemporary practices and factors influencing global tax avoidance and evasion through a systematic literature review (SLR) and bibliometric analysis. This study methodology uses SLR with bibliometric analysis to map this research trend. Relevant literature was collected and systematically analyzed to identify key themes, methodologies, and findings regarding tax avoidance and evasion. The study’s findings identify various tax avoidance practices, including profit shifting, transfer pricing strategies, and the use of tax havens by multinational corporations. The report also highlights various forms of tax evasion, such as money laundering and illicit financial flows. Key factors influencing tax behavior are ethical considerations, government policies, economic factors, and corporate governance practices. This analysis highlights the complex interactions between these factors in shaping tax practices globally. The study’s conclusions show that effective tax governance requires a multifaceted approach integrating ethical standards, a strong regulatory framework, and international cooperation. Ethical corporate behavior and transparent reporting are essential in promoting tax compliance and fairness. This study emphasizes the critical role of policymakers in designing and enforcing tax policies that discourage aggressive tax planning while encouraging economic growth and equality. Recommendations from these findings are to increase transparency in multinational operations, strengthen international tax cooperation, and improve global tax administration capabilities. In addition, increasing taxpayer education and awareness can foster a culture of compliance and ethical tax practices. Future research should prioritize longitudinal studies and case-specific analyses to deepen understanding and develop targeted interventions to address tax avoidance and evasion challenges.

Global Capital Allocation

We survey the literature on global capital allocation. We begin by reviewing the rise of cross-border investment, the shift toward portfolio investment, and the literature focusing on aggregate patterns in multilateral and bilateral positions. We then turn to the recent literature that uses micro data to document patterns in global capital allocations. We focus on the importance of the currency of denomination of assets in international portfolios and the role that tax havens and offshore financial centers play in intermediating global capital. We conclude with directions for future research in this area.

Taxation of MNE profits in an R&D driven economy: Beneficial tax havens and minimum taxes

AbstractResearch and development (R&D) by multinational enterprises (MNEs) generates substantial positive cross‐country spillovers. With R&D incentives primarily provided by the MNEs' host countries, these nations bear the entire cost of incentivising R&D but only reap a fraction of the benefits, resulting in inefficiently low R&D incentives and investment from a global perspective. Allowing MNEs to shift their profit to a tax haven shelters the firms' profit from foreign taxation and increases the net returns to R&D without reducing the domestic tax base. In this setting, tax havens can be welfare beneficial because they help to internalise the positive cross‐country spillovers of R&D. The optimal effective minimum tax balances a reduction in wasteful profit shifting and more efficient R&D incentives for MNEs. Regardless of the welfare effect of R&D, a strictly positive minimum tax is optimal for each country. Uncoordinated minimum taxes may be excessively high, if R&D investment has a strong impact on productivity. Under certain circumstances, IP boxes are a welfare‐improving substitute for tax havens.

French Imperial Statecraft, Capital, Corporate Taxation, and the Tax Haven that Wasn’t, 1920s–1950s

Abstract Towards the mid-1920s, a growing number of colonial firms began to transfer their headquarters from the metropole to French colonies to evade taxation on investment capital income. These transfers threatened to transform French colonies into tax havens. Why was this averted? This article explores the politics of corporate tax planning in the French colonial empire and shows that French colonial tax havens could have materialized on a large scale at two critical junctures: first in the inter-war period and then in the aftermath of the Second World War. It argues that they eventually did not come into being because successive administrations within the French Ministry of Finance did not let it happen. Broader structural determinants — the relative weakness of the French metropolitan fiscal state in the inter-war period and the unwillingness to let international capital dictate French development strategies in the late colonial period — crucially influenced the positions taken by the Ministry of Finance. Post-war dreams of restored grandeur made French authorities much more reluctant to outsource development and let go of state prerogatives. This unrealized possibility sheds light on the role of state power in the making and unmaking of tax havens and contributes to a fast-expanding historiography.

Why Stop Now? The Institutional Deterrence Effect and FDI into Tax Havens

Why Stop Now? The Institutional Deterrence Effect and FDI into Tax Havens

Wish You Weren’t Here: Tax Havens, Corruption, and the Reputation Damage of the MNE

Wish You Weren’t Here: Tax Havens, Corruption, and the Reputation Damage of the MNE

The Role of Institutional Ownership on Family Firm Tax Haven Internationalization

The Role of Institutional Ownership on Family Firm Tax Haven Internationalization

Tax disclosure strategies and reputational risks: An exploration based on the standard GRI 207

The Global Reporting Initiative (hereafter the GRI), a pioneer organization focusing on sustainability reporting standards, introduced a new standard dedicated to tax reporting in 2019 (GRI 207: Tax), supporting tax disclosure as a material CSR issue.Accordingly, we examine tax disclosure as framed by GRI 207. The literature on CSR reporting shows that companies increase CSR disclosures to mitigate negative attention to CSR issues. Based on this literature, we hypothesize that tax disclosure, framed by GRI 207, is positively associated with firms’ reputational risks (RRs). Our sample is composed of the 120 largest listed companies on the French financial market that are the most exposed to scrutiny. The data are collected for the year 2019.We use linear regressions to identify the determinants of tax disclosure strategies. As expected, greater RRs are associated with higher tax disclosure. According to the GRI 207 items on disclosure, three strategies are identified with reference to the CSR pyramid by Carroll (1991). We find that reputational risks, as measured as the presence of tax havens and financial controversies, are associated with distinct tax disclosure strategies. The issuance of a disclosure standard is not a guaranty of greater transparency.To our knowledge, our study is the first to examine tax disclosure strategies framed by the most recent standard of GRI 207 as part of CSR reporting. We provide several implications and directions for future research.

Behavioural Responses to Wealth Taxation: Evidence from Colombia

Abstract We study behavioural responses to personal wealth taxes in Colombia. We utilise tax microdata from 1993 to 2016 linked with the leaked Panama Papers to investigate offshoring to the country’s key tax havens. We leverage variation from discrete jumps in tax liability and four major reforms to the wealth tax system, including changes in tax rates and duration, using bunching and difference-in-difference techniques. We find compelling evidence that taxpayers instantly reduce the wealth they declare in response to a wealth tax. Moreover, these effects can persist for years even after the wealth tax is no longer in place, providing the first evidence of a hysteresis effect for a temporary tax policy. The response is driven by misreporting items that authorities cannot cross-verify, such as overstating debt and understating non-third-party-reported business assets. Additionally, the wealthiest taxpayers respond to wealth tax increases by hiding assets in hard-to-track entities in tax havens.