Friday, October 20, 2023
David R Agrawal (Kentucky; Google Scholar) presents Hidden Havens: State and Local Governments as Tax Havens? at Peter A. Allard School of Law, University of British Columbia today as part of itsTax Law and Policy Speaker Series hosted by Wei Cui:
An international tax haven is usually a low-tax jurisdiction that seeks to attract investment by foreign investors. But, there are many state and local jurisdictions within federal systems that set zero tax rates on personal or corporate income, consumption, property, and wealth in an effort to attract activity from other high-tax jurisdictions. This paper discusses whether subnational tax havens are distinct from intense tax competition, and concludes that in a federal system, the economic implications of the two may be similar, but the policy responses differ subtly.
A survey of the empirical evidence on the effect of zero or very low tax rates indicates that the lowest tax jurisdiction may disproportionately benefit from non-real base shifting, but real and avoidance responses also arise in response to smaller tax differentials between non-havens. Turning to the corporate income tax, the paper discusses how legal rules such as formula apportionment, economic nexus, and incorporation rules influence tax competition and the avoidance behaviours of multistate companies.