Public Finance in the Era of the COVID-19 Crisis
18-20 August 2021 | Online, Organized by University of Iceland, Reykjavík
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B03: Tax Havens
12:30pm - 12:52pm
Tax Haven Activities and Tax Liabilities of Multinational Firms in a Cross-country Setting
NHH Norwegian School of Economics, Norway
This paper investigates the effect of tax haven activities on the effective tax burden of corporate groups in a cross-country setting. Using consolidated accounting data and ownership records from the historical Orbis database between 2007 and 2016, we find that taxes paid at the consolidated firm-level decreases with tax haven activities. Measuring tax haven activities as the percentage of tax haven affiliates to the total amount of foreign affiliates, a one percentage point increase in tax haven activities reduces the ratio of tax liabilities to pre-tax earnings (total assets) by 2.37 (0.07) percentage points. However, after controlling for firm-specific fixed effects the results are no longer significant. These results shed an interesting light on the previous literature that have neglected such unobserved firm characteristics. When using dummy variables to capture the extent of tax haven activities we find that firms benefit from a considerable presence in tax havens.
12:52pm - 1:15pm
Who Benefits From Domestic Firms’ Use Of Tax Havens?
1Norwegian University of Life Sciences, Norway; 2University College Dublin, Ireland
Although tax-motivated profit shifting reduces the corporate tax base in high-tax countries and impacts government revenues, it is unlikely that this is the only significant impact profit shifting has. This paper focuses on the relationship between the utilization of tax havens and employee compensation. Put bluntly, if a firm saves money by not paying taxes, whose pocket is that money ending up in? We investigate this issue from multiple directions using data from Statistics Norway from 2008 onwards, where we match employee, firm, and international transactions. We define a tax haven firm in three different ways: i) cash transactions to a tax haven, ii) import of services from a tax haven, including rent payment for IP, iii) being majority-owned by a foreign shareholder. Preliminary results suggest that tax haven firms pay overall higher wage compensation to all employees but that the effect is most substantial among the already high earners.
1:15pm - 1:37pm
Tax Haven, Pollution Haven or Both ?
1CNRS, CREST, France; 2University of Fribourg; 3University of Rome La Sapienza
This paper studies the interplay between a poor and a rich country when they compete sequentially over corporate taxes and environmental regulations to attract imperfectly mobile firms. Generally, the poor country undercuts the rich country in terms of corporate taxes and chooses to be both a tax and pollution haven when it is less concerned about the environment than the rich country is and capital integration is low. However, it rarely does better in terms of welfare than the rich country. Finally we find that tax competition immunizes countries against the detrimental effect of globalization on environmental standards.
1:37pm - 2:00pm
The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance
1Tilburg University, Netherlands, The; 2CPB Netherlands Bureau for Economic Policy Analysis
Reviewing the most important studies on global revenue losses of corporate tax avoidance, I asess that a median estimate is about 150 billion dollars. This includes the quantitative effects of debt and IP-shifting and transfer pricing. Treaty shopping could lead to lower tax revenues on dividends, interest, and royalties by about 45 billion dollars. Moreover, I will show that traditional tax havens and conduit countries have different economic and tax characteristics (to some extent). This also requires different (international) policy solutions Finally, I assess quantitatively the role of tax havens and conduit countries in international corporate tax avoidance taking account of phantom investment. Tax havens are responsible for a substantial part of corporate tax avoidance, but an even larger part is due to different tax arrangements between ‘normal’ countries. Conduit countries facilitate tax avoidance but are often only one link in the country chain of international tax planning.
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