Lobbying and the international fight against tax havens

Abstract

Despite a variety of measures taken by high‐tax countries, the international fight against tax havens so far remains rather ineffective. This paper introduces offshore lobbying as a possible explanation for this observation. The author analyzes the international fight against tax havens in a two‐country model, in which the onshore country exerts pressure on domestic profit‐shifting firms and the tax haven's government lobbies against this measure. In this framework, he finds that pressure and lobbying are strategic substitutes and that there is an extensive margin incentive for offshore lobbying. Furthermore, when starting at initially high costs for profit shifting, a reduction in these costs leads to fewer profit‐shifting firms. Finally, when allowing for a second low‐tax jurisdiction, the overall level of lobbying increases, but less than proportionally.

The Political Economy of the International Tax Transparency Agenda in the G20/OECD Context

“…Under this hypothesis, we would expect a positive sign for the coefficients of the respective variables or to see no effect, which would indicate that these countries do not make any less progress than other countries. Motives related to protecting special interests and related counter-lobbying to information exchange (Hauck, 2018) would support the opposite hypothesis and yield a negative sign.…”

“…Reputational risks have become more prominent in recent years and are referenced e.g. by Hauck (2018) or Johannesen and Zucman (2014) as a reason for growing participation in international information exchange.…”

“…Low fines and the prospect of tax amnesties in onshore countries reduce incentives of participation by international financial centres. Defensive lobbying by jurisdictions to preserve profit shifting opportunities arguably also works against participation and compliance (Hauck, 2018). Such lobbying may be motivated by protecting both the rents of tax evaders and direct or indirect gains to financial centre governments.…”

“…These included a list of uncooperative jurisdictions by the OECD and a list published by the Financial Stability Forum of uncooperative, semi-cooperative and non-cooperative offshore wealth centres. If reputation motivates countries' participation in information exchange, we would expect more cooperation from jurisdictions that were at the time listed as un/semi-cooperative (positive sign, see Konrad and Streper, 2016;Hauck, 2018). If such tools for applying pressure did not matter, these countries would not be more likely to exchange information along the three dimensions of participation, speed and compliance (no significance or negative sign).…”

Economic Integration and Agglomeration of Multinational Production with Transfer Pricing

“…More recent studies introduce a low-tax country with no production or consumption, calling it a tax haven country, and consider tax competition between a home country and the tax haven(Krautheim and Schmidt-Eisenlohr, 2011;Langenmayr et al, 2015;Hauck, 2019). This setting greatly enhances analytical tractability but is not suitable to investigate the MNEs' production location.8 In other numerical examples, they allow for asymmetry in the leniency of tax regulations and asymmetric country sizes, in which case, the small country may win the MNE while setting a higher tax rate.…”