With which countries do tax havens share information?

2012

In recent years, tax havens have been put under increasing political pressure to co-operate with high tax countries in efforts to reduce tax evasion and avoidance. One particular area of concern is the exchange of information for tax purposes. In order to encourage the exchange of tax information between countries the OECD has created the Global Forum on Transparency and Exchange of Information for Tax Purposes. Its role is to provide a framework for international co-operation in the area of exchange of tax information.

Many tax havens have reacted to this political pressure by changing their policies with regard to bank secrecy and information exchange. As part of OECD standards, countries are expected to sign tax information exchange agreements (TIEAs) with other countries. TIEAs are particularly important in cases where no double taxation agreements exists because double taxation agreements often include arrangements for information exchange. Currently tax havens are required to sign a minimum of 12 TIEAs in order to avoid being put on the list of uncooperative jurisdictions.

This research project considers how tax havens choose their partners for the signing of TIEAs and, as a consequence, whether the network of TIEAs is likely to be effective in fighting tax evasion. Two possibilities are: (a) that to avoid providing useful information, tax havens could systematically avoid TIEAs with countries with which they have a strong economic relationship; and (b) if another country knows that its residents favour a particular tax haven, it will try to achieve a TIEA precisely with this tax haven, rather than with others. Our findings suggest that on average the existence of stronger economic links between two countries increases the likelihood of signing agreements. But this effect is not very large.  Focusing on the 5 partner countries which are most important in terms of economic links for each haven, we find that on average tax havens have agreements on information exchange - either as TIEAs or in double taxation agreements (DTAs) - with just under half of them. This suggests that tax havens do not systematically avoid signing TIEAs with countries to which they have strong economic links. But it also suggests that many relevant relationships are not covered. There is also evidence that the activity of signing TIEAs slows down after countries have reached the threshold of 12 agreements.

Clemens Fuest

 

2015

In recent years, tax havens and offshore financial centres have come under increasing political pressure to cooperate with other countries in matters of taxation and in efforts to reduce tax evasion and avoidance. As a result many tax havens have signed tax information exchange agreements (TIEAs). In order to comply with OECD standards tax havens are obliged to sign at least 12 TIEAs with other countries. This research investigates how tax havens have chosen their partner countries. We ask whether they have signed TIEAs with countries to which they have strong economic links or whether they have systematically avoided doing this, so that information exchange remains ineffective. We analyse 565 TIEAs signed by tax havens in the years 2008–2011. We find that on average tax havens have signed more TIEAs with countries to which they have strong economic links. Our analysis thus suggests that tax havens do not systematically undermine tax information exchange by signing TIEAs with irrelevant countries. However, this does not mean that they exchange information with all important partner countries.

Katarzyna Bilicka and Clemens Fuest