How Do International Tax Planning Motives Impact Tax Policy in the Developed, Emerging, and Financial Hub Jurisdictions?

Abstract

Paper contains an empirical cross-country comparative analysis of international tax policy in relation to MNEs and their FDIs in the context of international tax planning motives. First, I explore and compare the rules aimed at protecting the tax base and countering tax avoidance and the rules aimed at attracting investments. Second, I evaluate the impact of these corporate tax rules on the FDIs. My findings show that the countries with different fundamental economic characteristics use different tax policy to compete for FDIs by the MNEs. I highlight three groups of countries with differing tax competition behaviours: (a) emerging economies, (b) large-scale, developed economies and (c) financial centres. Financial centres with anomaly higher level of FDIs passing through them adopt the most open tax policy which drives the global tax competition for financial capital, while both larger developed and emerging economies adopt more defensive corporate tax policy that is motivated by the fiscal considerations.