Automatic for the (tax) people: information sharing and cross-border investment in tax havens

Abstract

This paper examines the impact of international automatic exchange of information (AEOI) treaties on cross-border investments in tax havens. Using a restricted version of the BIS Locational Banking Statistics we find that AEOIs significantly reduced cross-border deposits. A sectoral breakdown assessment reveals that households were the key driving force behind this contraction. However, we also document evidence of households’ deposits shifting to non-AEOI haven countries and larger deposits by non-bank financial institutions between tax haven countries, suggesting an increased use of shell corporation networks since AEOI introduction. Extending the analysis to portfolio and direct investment, we observe changes in investment patterns vis-à-vis tax havens which are consistent with a significant impact of AEOI treaties on these forms of cross-border investment.