The three body problem: Ecuador's tax on tax haven ownership

• In Event: Tax Havens and Tax Planning

Abstract

Can a country reduce its exposure to tax havens, and what are the implications? We analyze Ecuador's corporate tax surcharge for firms with owners in tax havens, a reform made possible by the prior establishment of an ownership registry. Comparing the behavior of firms with tax-haven owners at baseline, versus other foreign-owned firms, we find that the reform induced 12 percent of exposed firms to report terminal owners outside havens. The new owners are persons, rather than firms, thus raising beneficial ownership transparency. Moreover, exposed firms increase tax payments by around 15%, without reducing employment and investment in Ecuador. Yet, intermediate ownership in tax-havens and transactions with havens do not fall. Overall, the policy combining a "flashlight" (the ownership registry) and a ``stick'' (the tax surcharge) raised transparency and mitigated tax erosion, without severing tax haven ties.

Authors

• Jakob Brounstein, jakob.brounstein@gmail.com

• Pierre Bachas