Optimal fiscal barriers to international economic integration in the presence of tax havens
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Optimal fiscal barriers to international economic integration in the presence of tax havens. / Johannesen, Niels.
I: Journal of Public Economics, Bind 96, Nr. 3-4, 2012, s. 400-416.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - Optimal fiscal barriers to international economic integration in the presence of tax havens
AU - Johannesen, Niels
PY - 2012
Y1 - 2012
N2 - This paper develops a model where firms can shift profits to tax havens by means of intra-firm loans and countries can protect themselves against profit shifting by taxing cross-border interest flows. The model considers two countries with a scope for welfare improving economic integration. The first-best tax system has two important characteristics: (i) the tax rate on interest flows to the other country is zero to ensure the optimal level of economic integration; (ii) the tax rate on interest flows to tax havens is high enough to deter profit shifting to tax havens. In second-best environments, countries face a trade-off between economic integration and protection against tax havens, which causes protection to be suboptimally low. The key to the result is that economic integration makes it easier for multinational firms to circumvent taxes on interest payments to tax havens with conduit loans. The paper thus provides an explanation for the empirical puzzle that many countries do not tax interest payments to tax havens despite the scope for profit shifting
AB - This paper develops a model where firms can shift profits to tax havens by means of intra-firm loans and countries can protect themselves against profit shifting by taxing cross-border interest flows. The model considers two countries with a scope for welfare improving economic integration. The first-best tax system has two important characteristics: (i) the tax rate on interest flows to the other country is zero to ensure the optimal level of economic integration; (ii) the tax rate on interest flows to tax havens is high enough to deter profit shifting to tax havens. In second-best environments, countries face a trade-off between economic integration and protection against tax havens, which causes protection to be suboptimally low. The key to the result is that economic integration makes it easier for multinational firms to circumvent taxes on interest payments to tax havens with conduit loans. The paper thus provides an explanation for the empirical puzzle that many countries do not tax interest payments to tax havens despite the scope for profit shifting
KW - Faculty of Social Sciences
KW - Tax competition
KW - Profit shifting
KW - Tax havens
KW - Withholding taxes
KW - Economic integration
U2 - 10.1016/j.jpubeco.2011.12.008
DO - 10.1016/j.jpubeco.2011.12.008
M3 - Journal article
VL - 96
SP - 400
EP - 416
JO - Journal of Public Economics
JF - Journal of Public Economics
SN - 0047-2727
IS - 3-4
ER -
ID: 36142382