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We want government to help us prosper. For working people, prosperity requires employment and employment requires business. After World War II, most of the world was either devastated or underdeveloped leaving the United States without foreign competition. Local competition took its place. The States and local governments competed against one another on their natural resources, access to transportation, infrastructure, schools, and work force. These are the products of government spending. Some States did not have much to attract economic development. They created their own attributes instead. For example, right to work laws attracted companies that wanted to avoid unions and no usuary limits attracted credit card companies who wanted to charge high rates. Other States offered tax holidays. Move here and pay no tax for ten years. But saving money in taxes lost its appeal when other jurisdictions offered even more. Rather than build good sewage systems or roads for everyone, towns provided free infrastructure built to company specifications in addition to tax incentives. By the 1970s, firms learned that they could get States and localities to bid against one another. Each providing a package of bigger incentives. We can see the result of these races to the bottom in cities and towns that gave companies whatever they wanted only to find themselves with vacant factories and roads leading to nowhere. While the States were competing with one another, the rest of the world was emerging from war. Like the States, these countries wanted to help their citizens prosper. For those without natural resources or great infrastructure or educated workers, one alternative was to become a tax haven. A tax haven is the other side of a tax incentive. With tax incentives, a government gives up the right to tax in the hope that a firm's relocation will bring its citizens success. In a tax haven, a government hopes to improve its citizens' fortune by helping a foreign taxpayer avoid another government's taxes. Whether tax incentive or tax haven, in the end, the result is the same. The stakes get higher and higher. The companies and foreign taxpayers move from site to site. They take everything they can get and then convince another government to give more. Now a decade of investigative journalism shows that not only are the States in race to the bottom with their own tax revenues, but they are also transforming themselves into tax havens thus helping foreign taxpayers deplete their home countries' revenues. This paper is a cautionary tale. It shows what makes the United States the world's favorite tax haven and examines what we can expect if this trend continues. [ABSTRACT FROM AUTHOR]

Global firms finance themselves through foreign subsidiaries, often shell companies in tax havens, which obscures their true economic location in official statistics. We associate the universe of traded securities issued by firms in tax havens with their issuer's ultimate parent and restate bilateral investment positions to better reflect the financial linkages connecting countries around the world. Bilateral portfolio investment from developed countries to firms in large emerging markets is dramatically larger than previously thought. The national accounts of the United States, for example, understate the U.S. position in Chinese firms by nearly $600 billion. Further, we demonstrate how offshore issuance in tax havens affects our understanding of the currency composition of external portfolio liabilities and the nature of foreign direct investment. Finally, we provide additional restatements of bilateral investment positions, including one based on the geographic distribution of sales. [ABSTRACT FROM AUTHOR]

This paper examines the production and capital location effects of two approaches to taxing the incomes of subsidiaries of multinational enterprises (MNEs) in tax haven countries. The United States and the United Kingdom immediately tax ''Foreign Base Company Sales Income'' (FBCSI) of foreign subsidiaries reselling inventory outside the subsidiary's host country except when it is manufactured in the host country. The second approach used by Canada does not tax any active income earned in the tax haven country. We show that FBCSI induces U.S. MNEs manufacturing their product in the United States to reduce sales and increase prices in United States. Alternately, they manufacture in the tax haven country, resulting in lower U.S. tax collections, lower quantities, and higher prices. These effects are absent for Canadian MNEs. [ABSTRACT FROM AUTHOR]

This paper investigates the effect tax havens and other foreign jurisdictions have on the income tax rates of multinational firms based in the United States. We develop a new regression methodology using financial accounting data to estimate the average worldwide, federal, and foreign tax rates on worldwide, federal, and foreign pretax book income for a large sample of U.S. firms with and without tax haven operations. We find that on average U.S. firms that disclosed material operations in at least one tax haven country have a worldwide tax burden on worldwide income that is approximately 1.5 percentage points lower than firms without operations in at least one tax haven country. Our results also show that U.S. firms face a 4.4% current federal tax rate on foreign income whether or not they have tax haven operations. Finally, we find that U.S. firms with operations in some tax haven countries have higher federal tax rates on foreign income than other firms. This result suggests that in some cases, tax haven operations may increase U.S. tax collections at the expense of foreign country tax collections. [ABSTRACT FROM AUTHOR]

Abstract: The new rules of Circular 230 require changes in the way practitioners document recommendations and communicate with clients in many general tax-planning situations. This article provides an overview of the applicability of Circular 230 including a description of covered opinions and additional detail related to the two types of covered opinions most likely to be encountered by financial professionals - the tax-avoidance strategy and the reliance opinion. A discussion of best practices for tax professionals to comply with these rules is also presented. [ABSTRACT FROM PUBLISHER]

High-net-worth taxpayers continue to hide assets offshore, and offshore tax enforcement remains an immense problem for the United States. In 2016, the Panama Papers revealed another previously unnoticed reason that high-net-worth tax cheats place assets offshore: to hide them from their spouses during divorce proceedings. Typically, these offshore tax evaders also will refuse to disclose their offshore accounts during divorce proceedings even though required to do so. The individuals hiding offshore assets in this manner are predominantly males. Ultimately, their wives are forced to hire forensic accountants to trace an extensive maze of offshore ownership during the divorce. This Article proposes a novel solution to the problem of offshore tax enforcement by using high-net-worth divorces. Currently, an offshore tax evader may frustrate his wife's attempts to discover family assets held offshore during divorce proceedings and still remain eligible for tax amnesty programs. Moreover, he can later claim that he did not "willfully" hide assets from tax authorities and thereby escape criminal prosecution. This Article solves these two problems in a manner that will strengthen offshore tax enforcement while truncating prolonged divorce proceedings. In addition, currently, a wife who learns of her husband's offshore tax fraud during divorce will face civil and criminal liability as well, unless she can secure innocent spouse relief. Such relief is difficult to attain due to existing inequities and misperceptions about financial and other forms of domestic abuse. As a result, our current approach protects the guilty, high-net-worth tax cheat who refuses to disclose his offshore assets either to tax authorities or to his wife. At the same time, it diminishes the chances that his wife will ever whistle blow to the Internal Revenue Service by failing to protect her from civil and criminal liability. This Article argues for reforms in the areas of family law and tax law that would (1) hold high-net-worth husbands accountable for noncompliance in both contexts and (2) incentivize wives to whistle blow using information about offshore assets gathered from the divorce proceedings. [ABSTRACT FROM AUTHOR]

We investigate whether tax avoidance becomes more uncertain as the rate of tax avoidance increases. We estimate a system of equations to demonstrate that as firms' pretax income increases, each additional dollar of potential tax results, on average, in 32.8 cents of tax avoided, which we refer to as incremental tax avoidance. Of the incremental tax avoided, 1.4 cents represent additions to the reserve for uncertain tax benefits (UTB reserve), or 4.3 percent of the total incremental tax avoided. We then partition sample firms into groups that prior research suggests engage in higher rates of tax avoidance, and examine the amount of incremental tax avoidance that results in additions to the UTB reserve. Results demonstrate that the percentage of incremental tax avoidance reflecting additions to UTB reserve is not larger for groups engaging in higher rates of tax avoidance, suggesting higher rates of tax avoidance may not be more uncertain. JEL Classifications: H26; M41; M48. [ABSTRACT FROM AUTHOR]

This study examines the endogenous relation between corporate social responsibility (CSR) and tax avoidance by focusing on a common strategy of corporate tax avoidance, i.e., establishing entities in offshore tax havens. Using hand-collected data on a sample of U.S. firms, we find that firms' CSR ratings increase substantially in the two years after they first open tax haven affiliates. We provide evidence by using the controlled foreign corporations (CFC) look-through rule enacted by Congress in 2006 that facilitates offshore profit shifting. We find that firms that are affected by the CFC legislation increase their CSR practices in response. Overall, our results are consistent with the risk management theory, which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive CSR activities. [ABSTRACT FROM AUTHOR]

We examine whether tax-motivated income shifting by U.S. multinational corporations affects information asymmetry. Using a new firm-year measure of income shifting and a two-stage least squares approach, we find income shifting is positively associated with four measures of information asymmetry. Cross-sectional tests reveal that this effect is more pronounced for firms with large differences between foreign and domestic earnings growth. Using SFAS 131 to improve identification and establish evidence consistent with a causal relation between income shifting and information asymmetry, we demonstrate that the adverse impact of income shifting on information asymmetry is concentrated in firms that discontinue geographic earnings disclosures. Overall, our study provides evidence that significant consequences of information asymmetry are associated with tax-motivated income shifting. [ABSTRACT FROM AUTHOR]

Theory and recent empirical literature suggest that social and professional connections may influence corporate policy. However, inference may be biased by the possibility that firms who share peers also share unobserved characteristics that are correlated with observed policy. Using a novel identification strategy, we predict and find that director connections through well-known island tax havens have a significant effect on corporate tax policy. Specifically, we find that U.S. firms with directors who are connected to firms domiciled on the islands of the Bahamas, Bermuda, or the Caymans exhibit significantly greater tax avoidance than other U.S. firms. The presence or arrival of an island director is associated with a reduction of between one and three percentage points in the firm's effective tax rate. We also observe a significant increase in the use of tax haven subsidiaries following the arrival of the island director. [ABSTRACT FROM AUTHOR]

Manuscript Type Empirical Research Question/Issue This paper explores the valuation effects of the tradeoff between tax avoidance and corporate governance through tax haven M&As. Firms can achieve tax savings by selling to an acquirer based in a tax haven, making the newly created multinational a haven resident. Changing a firm's tax home through a 100 percent acquisition is also accompanied by a change in legal system and corporate governance. Therefore, tax savings could come at the expense of corporate governance degradation making the value implications of such tax avoidance attempts an important empirical issue. Research Findings/Insights Using an international sample of cross-border M&As from 1989 to 2012, we find value evidence supporting the agency costs hypothesis. For 100 percent M&As, a lower target premium is associated with those transactions where the tax haven acquirer has weaker investor protection than the target. Theoretical/Academic Implications Our findings provide value evidence regarding the agency costs of tax-motivated M&As as a result of the secrecy laws and limited investor protection of tax havens. Practitioner/Policy Implications This study provides a perspective for executives of multinational firms to take into account the value consequences associated with secrecy laws and weak investor protection while considering a possible relocation to tax havens. It also offers further insight to policymakers concerning the costs of limited investor protection and lack of transparency. [ABSTRACT FROM AUTHOR]

The U.S. government has been focusing its attention on foreign investors who may be investing proceeds of illegal activity into U.S. entities without identifying the natural persons who are the beneficial owners of the equity interests in such entities. There is great concern that the U.S. has allowed itself to be used as a tax haven due to the lack of transparency in certain states' laws, which do not require the disclosure of entity ownership. This article looks at FinCEN's current anti-tax-avoidance measures, including the new account opening requirements, along with the requirements relating to cash purchases of high-end real estate with which title insurance companies and U.S. lenders must comply. Additionally, this article discusses the Treasury Department's expanded requirements for reporters of bank deposit interest to foreign tax authorities. [ABSTRACT FROM AUTHOR]

This article assesses the claims of the shareholder value literature of the effects of financialisation on non-financial corporations and, particularly, the claim that fixed capital accumulation in the United States has been impeded by the increasing financial payments of non-financial corporations, and also by these firms transforming themselves into rentiers. The financialisation explanation of macro patterns assumes that trends in the 1970s and early 1980s are representative of the pre-financialisation era but that is not so. Another complication is the global sphere. The vast expansion of majority-owned foreign affiliates from the mid- 1990s suggests that the managers of US non-financial corporations did not abandon growth objectives. Claims about rentieralisation also require further investigation. On the one hand, it is misleading to treat all external investment as a financial asset and to assume that corporate dividends provide a robust proxy for financialisation. On the other hand, the shift to external accumulation by US non-financial corporations is obscured due in part to the conceptual limitations of direct investment data, and the widespread strategy of forming non-bank holding companies to funnel cross-border activities. [ABSTRACT FROM AUTHOR]

The article discusses the development of the U.S Foreign Account Tax Compliance Act (FATCA) and the worldwide taxation system in the U.S. Topics discussed include Supreme Court's 1924 decision in case Cook v. Tait in which a U.S citizen challenged U.S Congress's right to tax his Mexican source income, criticisms on FATCA based on the citizenship-based taxation system, and tax havens issues handled by the Organization for Economic Development and Cooperation.

We empirically investigate one form of illegal investor-level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round-tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker's () economic theory of crime, we identify the tax evasion component by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investor-level tax evasion affecting cross-border equity and debt investment. [ABSTRACT FROM AUTHOR]

The objective of most corporations is to provide value to shareholders. This objective is achieved in a variety of way. One way of achieving this is by minimizing the corporation's expenses and maximizing its income. Since tax is a real expense, strategies to minimize taxes are commonly utilized by corporations. Recently, the use of a tactic known as "tax inversion" has become a common and pervasive practice utilized among U.S. based multinational enterprises (MNEs) to achieve their objective. Tax inversion is where a U.S. corporation moves its domicile to a foreign country by simply re-incorporating overseas. Despite the company still maintaining its material operations in the U.S., it is no longer subject to U.S. corporate taxes on income earned abroad. These tax inversion practices are considered to be perfectly legal for U.S. corporations and are considered to be wise business practices aimed at reducing the company's tax liability and increasing the company's income. Nevertheless, there are many ethical issues and considerations associated with these tax inversion policies. This paper discusses tax inversion strategies employed by multinational enterprises as well as some of the legal and ethical issues associated with these strategies. The potential economic impact on society is also considered. [ABSTRACT FROM AUTHOR]

Recent G8 and G20 statements, combined with a number of OECD campaigns have given an impression that the world has entered a phase of re-invigorated multilateral efforts to combat tax abuse. We argue that this impression is not entirely mistaken, but the centre of gravity in the battle against tax abuse generally, and tax havens specifically, is shifting decidedly towards unilateral approaches. The US is, in particular, in flexing its muscles attempting to ensure that the various mechanisms used to evade taxation and perpetrated through tax havens have little impact on its 'back yard'. We call this the 'Not In My Back Yard' (NIMBY) principle of regulation, which underpins the new Foreign Account Tax Compliance Act (FATCA). The NIMBY principle, we argue, is likely to be adopted by other large political entities. [ABSTRACT FROM AUTHOR]

Despite the U.S. public's tolerance of and emotional attachment to tax avoidance at the individual level, the tax avoidance practices of modern multinational corporations such as Google, Amazon, Apple, and Starbucks recently have received heavy criticism in the media. This Note argues that the doctrine of corporate social responsibility provides a logical rationale for multinational corporations to adopt antiavoidance practices, in that the harm caused by tax avoidance outweighs any financial benefit that accrues from these practices. Contrary to the views of some corporate leaders, tax avoidance can cause long-term harm to corporations and their shareholders by damaging corporate reputations and branding efforts, and also by diverting funds from national infrastructures, skewing the allocation of tax burdens, and causing harm to developing nations operating as tax havens. Fortunately, the same mechanisms that helped turn environmentally sustainable and human rights practices into corporate social responsibility "norms" -- consumer activism, investor influence, and voluntary corporate leadership - also can be implemented to lead multinational corporations away from tax avoidance practices, ultimately ending the prevailing antiavoidance tax culture and reducing the harms caused by tax avoidance. [ABSTRACT FROM AUTHOR]

This article shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens. Drawing on a unique Swiss data set and exploiting systematic anomalies in countries’ portfolio investment positions, I find that around 8% of the global financial wealth of households is held in tax havens, three-quarters of which goes unrecorded. On the basis of plausible assumptions, accounting for unrecorded assets turns the eurozone, officially the world’s second largest net debtor, into a net creditor. It also reduces the U.S. net debt significantly. The results shed new light on global imbalances and challenge the widespread view that after a decade of poor-to-rich capital flows, external assets are now in poor countries and debts in rich countries. I provide concrete proposals to improve international statistics. JEL Codes: F32, H26, H87. [ABSTRACT FROM PUBLISHER]

The phrase "tax haven" is often used in political debate about tax equity, generally in a negative tone. The purpose of this paper is to examine the ways tax havens are used by U.S. taxpayers, and to comment on the effect of tax havens on tax equity. [ABSTRACT FROM AUTHOR]

Globalization diminishes the U.S. government's ability to enforce the income tax by undermining the Internal Revenue Service's information advantage. U.S. taxpayers are able to hold their money overseas, where the IRS's information-gathering abilities are at their lowest ebb, with increasing ease. Tax treaties aim to rectify the IRS's information disadvantage abroad by encouraging foreign countries, particularly tax havens, to share information with the IRS. However, these treaties have been largely ineffective. Instead, it may be time for the United States to go the way of other developed countries and reform its tax structure to reduce reliance on the income tax and adopt, instead, a value-added tax. [ABSTRACT FROM AUTHOR]

The article focuses on the sharing of tax information between the U.S. and China with respect to the secrecy laws of bank and the entrance of the countries into the tax information exchange agreement. The tax authorities of the world face problems due to the barriers regarding the tax information exchange between countries and the offshore tax evasion. Information on the role of the secrecy laws of domestic banks regarding the facilitation of tax evasion of the two countries is also presented.

When a tax-exempt entity is both able and willing to lend its exemption to other taxpayers, tax-averse parties line up to take advantage of its largesse (and, in the process, reduce their own tax bill). Congress, eager to prevent such abuse of the exemption, decided that, in some circumstances, it would tax entities that would otherwise be exempt from taxation. In this Article, I show that Congress's response to such "lending" has failed to solve the problem and, in fact, is harmful to the tax system and to tax-exempt entities. To address this problem, this Article proposes a new way to prevent such lending--one that builds upon existing law--in order to combat the abuses perpetrated through tax-exempt entities. Congress should repeal the unrelated debt-financed income rules, which experience has shown are ineffective and harmful. This repeal would end the distortions that tax-exempt entities currently face. At the same time, in order to prevent tax-exempt entities from lending their exemptions to taxpayers, Congress should expand the tax shelter rules to capture these abusive transactions. [ABSTRACT FROM AUTHOR]

The enforcement of tax laws abroad has long posed problems for authorities. However, that enforcement becomes increasingly more problematic when the information necessary for proper enforcement is located within an impenetrable system whose sole purpose is to protect that information from tax authorities in other countries. Although much effort has been expended to remedy the harmful effects of tax havens, few strategies have succeeded. But with the prospects of a record federal deficit and an ever-increasing tax gap, U.S. authorities have begun to look for new ways to strengthen the enforcement of U.S. tax laws abroad. The most prominent of these proposals is the Stop Tax Haven Abuse Act, which invokes the use of a presumption strategy to remedy the lack of information problem. Nevertheless, this Act will most likely fall short of successful regulation. Most importantly, the Act represents a one-sided attempt to regulate a problem that is truly international. Moreover, even if the Act passes, it will provide the Internal Revenue Service few new tools to assist with the collection of taxes. Another issue with the proposed Act is that it invokes a presumption strategy, which may be viewed as an easy run-around for the lack of an automatic exchange provision in the bilateral agreements that currently control the exchange of tax information with foreign authorities. This Note summarizes and analyzes the current regulatory framework and proposes a strategy for the unification of existing regulatory regimes to provide a more effective system for combating the harmful effects of tax havens. [ABSTRACT FROM AUTHOR]

Traditionally, investors would select a particular tax haven for purposes such as low taxation; however, a host of other factors may prove far more essential: confidentiality, banking, currency control, communications, and treaty networks. Before selecting a particular tax haven, taxpayers and investors need to cautiously examine the economic and political stability of the nation, its geographic accessibility to worldwide markets, the availability of labor, the risk of nationalization of assets, and government cooperation. Planners need to keep in mind that the privacy and confidentiality once promised with these planning tools have eroded. Despite these shortcomings with offshore businesses and investing, the need for international tax planning has not diminished. [ABSTRACT FROM AUTHOR]

The White House, Internal Revenue Service (I.R.S.), U.S. Department of the Treasury (U.S. Treasury), and Department of Justice have mounted a crackdown on U.S. individuals and companies who improperly use foreign tax havens and bank secrecy jurisdictions to avoid tax. New procedures, legislation, international agreements, and enforcement initiatives have been adopted to deter the use of tax havens and bank secrecy jurisdictions. This U.S. effort is spearheaded by the 2010 Foreign Asset and Tax Compliance Act (FATCA), P.L. 111-147, which aims to force foreign financial institutions to report their U.S. account holders. This article will review FATCA and certain other U.S. initiatives, such as the expansion of the foreign bank and financial account reporting requirements. In addition, this article mentions certain other 2010 developments in U.S. cross-border tax enforcement. [ABSTRACT FROM AUTHOR]

Recently, the issue of tax havens has risen to the fore of the fiscal policy debate, with tax havens being singled out as the root cause of many of the fiscal shortfalls plaguing the governments of the world. Surprisingly, however, although there has been a fair amount of literature on why tax havens are harmful to the modern international tax regime, which countries become tax havens, and what means are available to combat tax havens, there has been less written specifically on the underlying question of why, notwithstanding all these points, tax havens exist in the first place, or why they persist in the face of such overwhelming criticism. This Article will fill that gap by directly confronting the question: why are there tax havens? To this end, this Article will propose for the first time that the focus of the international tax laws of wealthier countries, such as the United States, on capital neutrality-or making the flow of capital across borders easier and cheaper-can actually create or exacerbate the incentives necessary for poorer countries to act as tax havens. This can be thought of as a "capital neutrality paradox" in that it is the pursuit of capital neutrality-meant to increase worldwide efficiency-which leads to more countries acting as tax havens, effectively undermining worldwide efficiency. Consequently, punishing such countries in response would also prove counterproductive, because it would only exacerbate these incentives created by U.S. law in the first place. This "punishment paradox" in connection with the "capital neutrality paradox" can fundamentally alter the way in which the law should conceptualize and respond to the issue of tax havens. Rather than ask "why are there tax havens?", the question would become "why pursue capital neutrality?"Rat her than ask "what can we do to punish tax havens?", the question would become "would punishment be effective?" Such an approach could not only lead to a more efficient international tax regime, but could also be the first step to finally answering the question of why there are tax havens. [ABSTRACT FROM AUTHOR]

In movies and novels, tax havens are often settings for shady international deals; in practice, they are rather less flashy. Tax havens, also known as 'offshore financial centers' or 'international financial centers,' are countries and territories that offer low tax rates and favorable regulatory policies to foreign investors. For example, tax havens typically tax inbound investment at zero or very low rates and further encourage investment with telecommunications and transportation facilities, other business infrastructure, favorable legal environments, and limited bureaucratic hurdles to starting new firms. Tax havens are small; most are islands; all but a few have populations below one million; and they have above-average incomes. The United States and other higher-tax countries frequently express concerns over how tax havens may affect their economies. Do they erode domestic tax collections; attract economic activity away from higher-tax countries; facilitate criminal activities; or reduce the transparency of financial accounts and so impede the smooth operation and regulation of legal and financial systems around the world. Do they contribute to excessive international tax competition? These concerns are plausible, albeit often founded on anecdotal rather than systematic evidence. Yet tax haven policies may also benefit other economies and even facilitate the effective operation of the tax systems of other countries. This paper evaluates evidence of the economic effects of tax havens. [ABSTRACT FROM AUTHOR]

Using confidential tax shelter and tax return data obtained from the Internal Revenue Service, this study develops and validates an expanded model for inferring the likelihood that a firm engages in a tax shelter. Results show that tax shelter likelihood is positively related to subsidiaries located in tax havens, foreign-source income, inconsistent book-tax treatment, litigation losses, use of promoters, profitability, and size, and negatively related to leverage. Supplemental tests show that total book-tax differences (BTDs) and the contingent tax liability reserve are significantly related to tax shelter usage, while discretionary permanent BTDs and long-run cash effective tax rates are not. Finally, the model is weaker, yet still significant, in the FIN 48 disclosure environment. This research provides investors and policymakers with an extended, validated measure to calculate the presence of extreme cases of corporate tax aggressiveness. Such information could also aid analysts and other tax and non-tax researchers in assessing the benefits and risks of firm behavior. [ABSTRACT FROM AUTHOR]