Offshore financial activity and tax policy: evidence from a leaked data set

Abstract

We assess the European Union’s (EU) most significant international tax policy. The 2005 Tax and Savings Directive obliges cooperating jurisdictions to withhold tax or report on interest income earned by entities whose beneficial owner is an EU resident. As the Directive applies only to beneficial ownership in cooperative jurisdictions, it can be circumvented by transferring ownership to a non-EU resident or company or by transferring the entity to a non-cooperative jurisdiction. Using a database on individual offshore entities leaked from two firms in 2013, we compare the response of EU-owned entities with a control group of non-EU-owned entities. We show that the growth of EU-owned entities declined immediately after the Directive’s implementation, whereas that of non-EU-owned entities remained stable. We observe the substitution of EU ownership for non-EU ownership, as well as the substitution of cooperative for non-cooperative offshore jurisdictions. This calls for anti-evasion policies that are broader in scope and scale.

Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)

“…For example, Langenmayr [] finds that, in response to a 2009 IRS amnesty program, the amount of cross‐border bank deposits (as a proxy for offshore tax evasion) increases. A number of studies of the 2005 European Union Savings Directive (EUSD) information exchange agreement between member states and 15 tax‐haven countries find that funds were transferred to nonsigning countries or to shell corporations to circumvent the law (Johannesen [], Caruana‐Galizia and Caruana‐Galizia [], Omartian []). Similarly, Johannesen and Zucman [] find that cross‐border deposits by nonresidents shift to other jurisdictions after many countries signed upon‐request bilateral TIEAs with the United States.…”

“…For example, Langenmayr [] finds that offshore tax evasion increased after a 2009 U.S. amnesty program targeted at offshore accounts. Several studies examining previous information exchange agreements and changes to European automatic reporting regimes show that taxpayers move assets hidden in offshore accounts to jurisdictions not covered by new regulations (Huizinga and Nicodème [], Johannesen [], Johannesen and Zucman [], Caruana‐Galizia and Caruana‐Galizia [], and Omartian []). After FATCA is in place, taxpayers could continue to avoid U.S. taxes by investing in more opaque, nonfinancial asset classes not subject to the new reporting regime.…”

Tax evasion in new disguise? Examining tax havens' international bank deposits

“…This benchmark study for our work applies an event-study type approach to changes in banks deposits of non-banks in tax havens in relation to IoR agreements. This study is part of a strand of research working with tax haven data that, on top of tax haven bank deposits (see also Johannesen, 2014b), works with surveys of institutions registered in tax havens (Heckemeyer and Hemmerich, 2018) or leaked datasets (Caruana-Galizia and Caruana-Galizia, 2016;O'Donovan et al, 2019). Johannesen and Zucman (2014) find sizable significant reductions in these bank deposits as treaties threaten bank secrecy.…”

Political land corruption: evidence from Malta – the European Union’s smallest member state

“…The data set is large in scale and scope, and provides ample opportunity for further work. We see this article as contributing to the literature on the data-intensive analysis of the public sector and public policy (Gorodnichenko and Peter 2007; Caruana-Galizia and Caruana-Galizia 2016) as well as the literature on “forensic economics”, in which researchers aim to understand “behavior that agents would prefer to conceal” (Zitzewitz 2012, 731).…”