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

Published online by Cambridge University Press:  07 March 2016

Paul Caruana-Galizia  and
Matthew Caruana-Galizia
Paul Caruana-Galizia
Affiliation:
Institute of Economic History, Humboldt-University of Berlin, Germany E-mail: caruanap@hu-berlin.de
Matthew Caruana-Galizia
Affiliation:
International Consortium of Investigative Journalists, USA E-mail: mcaruana@icij.org
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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.

Keywords

offshore centresoffshore leaksSavings Directivetax evasiontax havens
Type
Research Article
Information
Journal of Public Policy , Volume 36 , Issue 3 , September 2016 , pp. 457 - 488
Copyright
© Cambridge University Press, 2016 

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Footnotes

*

The views expressed in this article are the sole responsibility of the authors and do not necessarily reflect those of the International Consortium of Investigative Journalists or the Humboldt-University of Berlin.

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