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At Your Service! The Role of Tax Havens in International Trade with Services

Author

Listed:
  • Shafik Hebous
  • Niels Johannesen

Abstract

This paper documents that tax havens play a prominent role in international service trade and investigates the nature of this role. We employ a firm-level dataset with detailed information about service trade and foreign affiliates for virtually all multinational firms in Germany, which allows us to approximately distinguish trade between related and unrelated parties. We find that the service trade of tax havens partly reflects genuine specialization in service industries, which suggests that institutional features such as low tax rates, secrecy and low regulatory standards create a comparative advantage in service production. We also find that trade in service categories such as intellectual property (patents and trademarks) and headquarter services (administration, management and advertising) partly reflects mispriced affiliate trade serving to shift profits to tax havens. We argue, however, that the loss of government revenue resulting from this type of corporate tax evasion is likely to be modest.

Suggested Citation

  • Shafik Hebous & Niels Johannesen, 2015. "At Your Service! The Role of Tax Havens in International Trade with Services," CESifo Working Paper Series 5414, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5414
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp5414.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Miethe, Jakob & Menkhoff, Lukas, 2017. "Dirty money coming home: Capital flows into and out of tax havens," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168082, Verein für Socialpolitik / German Economic Association.
    2. Shafik Hebous & Alfons J. Weichenrieder, 2015. "What Do We Know about the Tax Planning of German-based Multinational Firms?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(4), pages 15-21, 01.
    3. Francesco Bripi & David Loschiavo & Davide Revelli, 2017. "Services trade and credit frictions: evidence from matched bank-firm data," Temi di discussione (Economic working papers) 1110, Bank of Italy, Economic Research and International Relations Area.
    4. Sébastien Laffitte & Farid Toubal, 2018. "Firms, Trade and Profit Shifting: Evidence from Aggregate Data," CESifo Working Paper Series 7171, CESifo Group Munich.
    5. Johannes Becker & Niels Johannesen & Nadine Riedel, 2018. "Taxation and the Allocation of Risk Inside the Multinational Firm," CESifo Working Paper Series 7033, CESifo Group Munich.
    6. repec:ces:ifodic:v:12:y:2015:i:4:p:19149984 is not listed on IDEAS
    7. Li Liu & Tim Schmidt-Eisenlohr & Dongxian Guo, 2017. "International Transfer Pricing and Tax Avoidance : Evidence from Linked Trade-Tax Statistics in the UK," International Finance Discussion Papers 1214, Board of Governors of the Federal Reserve System (U.S.).
    8. Weichenrieder, Alfons J., 2016. "Panama & Co: Implikationen für die Steuerpolitik," SAFE Policy Letters 52, Goethe University Frankfurt, Research Center SAFE - Sustainable Architecture for Finance in Europe.
    9. Niels Johannesen & Thomas Tørsløv & Ludvig Wier, 2016. "Are less developed countries more exposed to multinational tax avoidance? Method and evidence from micro-data," WIDER Working Paper Series 010b (Revised version May, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    service trade; profit shifting; tax evasion; multinational firms; tax havens;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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