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Selected Online Reading on Tax Havens and Tax Avoidance

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Selected e-articles

  • Tax Evasion and Inequality; Alstadsæter, Annette ; Johannesen, Niels ; Zucman, Gabriel; American Economic Review, June 2019, Vol.109 (6), p.2073-2104

Abstract by the authors: Drawing on a unique dataset of leaked customer lists from offshore financial institutions matched to administrative wealth records in Scandinavia, we show that offshore tax evasion is highly concentrated among the rich. The skewed distribution of offshore wealth implies high rates of tax evasion at the top: we find that the 0.01  percent  richest households evade about 25 percent of their taxes. By  contrast, tax evasion detected in stratified random tax audits is less than 5  percent throughout the distribution. Top wealth shares increase substantially when accounting for unreported assets, highlighting the importance of factoring in tax evasion to properly measure inequality.

Abstract by the author: This paper provides a brief review of the academic literature that assesses the quantitative importance of tax avoidance behaviour of multinational entities (MNEs) by means of income shifting from high-tax to low-tax affiliates. Existing studies unanimously report evidence in line with tax-motivated profit shifting (despite using different data sources and estimation strategies). In terms of shifting channels, there is evidence consistent with strategic mispricing of intra-firm trade, the location of valuable intellectual property at low-tax affiliates and debt-shifting activities. The quantitative estimates vary across approaches and studies though. The paper moreover stresses that some care should be warranted when interpreting profit shifting estimates as they often rely on non-trivial assumptions.

Abstract by the authors: This paper explores the effects of unilateral tax provisions aimed at restricting multinationals’ tax planning on foreign direct investment (FDI). Using a unique dataset which allows us to observe the worldwide activities of a large panel of multinational firms, we test how limitations of interest tax deductibility, so-called thin-capitalization rules, and regulations of transfer pricing by the host country affect investment and employment of foreign subsidiaries. The results indicate that introducing a typical thin-capitalization rule or making it more tight exerts significant adverse effects on FDI and employment in high-tax countries. Moreover, in countries that impose thin-capitalization rules, the tax-rate sensitivity of FDI is increased. Regulations of transfer pricing, however, are not found to exert significant effects on FDI or employment.

Abstract by the authors: This paper analyzes multinational banks’ response to taxation. For the empirical analysis we use firm-level bank data from the Bankscope database. We find significant tax effects on reported profits of bank subsidiaries. The magnitude for the tax response of reported profits doubles the effects found in previous studies for non-financial MNCs. Additional analysis reveals that the response to tax incentives differs across business types. The tax elasticity of revenues generated by interest-bearing activities is less responsive compared to other activities. Results also reveal significant tax effects on loan loss provisions.

Abstract by the author: This article attempts to estimate the magnitude of corporate tax avoidance and personal tax evasion through offshore tax havens. US corporations book 20 percent of their profits in tax havens, a tenfold increase since the 1980; their effective tax rate has declined from 30 to 20 percent over the last 15 years, and about two-thirds of this decline can be attributed to increased international tax avoidance. Globally, 8 percent of the world's personal financial wealth is held offshore, costing more than $200 billion to governments every year. Despite ambitious policy initiatives, profit shifting to tax havens and offshore wealth are rising. I discuss the recent proposals made to address these issues, and I argue that the main objective should be to create a world financial registry.

Abstract by the author: This article addresses tax avoidance by companies in the context of the emerging field of business and human rights. It describes the mechanics of corporate tax avoidance and the human costs of such practices. It then considers the extent to which tax issues have been addressed by corporate social responsibility, before turning to business and human rights and assessing the potential value of the United Nations Guiding Principles on business and human rights in this context. The article draws on the experience of Ireland, given the country’s connection to abusive tax practices associated with large multinational corporations and its support for the United Nations Guiding Principles on business and human rights.

Abstract by the authors: This paper studies individual and social motives in tax evasion. We build a simple dynamic model that incorporates these motives and their interaction. The social motives underpin the role of norms and is the source of the dynamics that we study. Our empirical analysis exploits the adoption in 1990 of a poll tax to fund local government in the UK, which led to widespread evasion. The evidence is consistent with the model's main predictions on the dynamics of evasion.

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