Does increased bilateral transparency affect offshore activity? Evidence from Offshore Leaks Database

Abstract

Tax havens, also known as secrecy jurisdictions, facilitate tax avoidance and other forms of behaviour that cause a challenge to societies. Offshore data leaks such as Panama Papers have intended to reveal the players behind this curtain of secrecy. This thesis looks into tax information exchange agreements’ (TIEA) effect on the number of companies located in these jurisdictions, with the use of linear regression and synthetic difference-in-difference applied to the ICIJ Offshore Leaks Database. Yearly and monthly levels of analysis were conducted on offshore entities connected to the U.S., and how the enforcement of a TIEA affected these entities. The hypotheses are based on the change in the number of incorporations and inactivations found in each of the jurisdictions studied. While there are shortcomings to our study, the results were found to be robust, and to some extent generalizable since the analysis returned similar results when applied to Chinese entities. A rise in activity is found in both cases indicating a definite reaction following the enforcement of a TIEA, although not as expected. Therefore, such agreements may not be as effective in reducing the activity in secrecy jurisdictions. Reasons for this may be the increased ease of utilizing these jurisdictions, as well as the design of the tax information exchange agreements. These reasons could potentially form the basis of further research on this subject matter.