In 1998, the Organisation for Economic Co-operation and Development (OECD) issued a list of tax havens, known as the black list, according to the so-called name and shame approach. The aim was to fight harmful tax practices.
Since 1998, most offshore tax havens have aimed to dispel their evasion image and to improve information exchange. This improvement is indirectly supported by Dharmapala and Hines (2007), who demonstrate that many tax havens are well-governed countries.
Nowadays, tax havens are much more attractive for tax planning rather than for tax evasion. In particular, they allow companies to avoid taxation in their host countries. In other words, a multinational company can set up a subsidiary in a tax haven to shift income, by means of financial strategies and other tax planning activities.
For instance, a foreign subsidiary operating in a tax haven can borrow from its parent company placed in a high-tax country: as long as deductibility is allowed, the interest paid by the parent company to its subsidiary can reduce the overall tax burden faced by the multinational group. For other examples, such as the use of royalties and hybrid securities, see Altshuler and Grubert (2006). (See also Offshore fund and Offshore jurisdiction.)
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