TAX OPTIMIZATION AND ROUND TRIPPING OF CAPITAL: AN EXPLORATORY STUDY
TAX OPTIMIZATION AND ROUND TRIPPING OF CAPITAL: AN EXPLORATORY STUDY

Summary/Abstract: In order to reduce their tax liabilities, large companies around the world can develop tax-planning strategies by using creative accounting techniques. This is generally done by shifting profits from high-tax countries to tax havens or offshore financial centers. The purpose of this paper is to analyse the role of offshore jurisdictions in international tax planning using the statistics on direct investment inflows and outflows globally. The findings show that two of the top 3 countries with the largest size of direct investments are the Netherlands and Luxembourg. Also, eight of the first 25 countries or territories are offshore jurisdictions. Many of these tax jurisdictions have a higher level of direct investments than some G8 countries. Analysing foreign investment per capita, the results showed that almost all countries or territories in the top 10 reporting economies are tax havens or offshore financial centers. Given that the results are similar in both inflows and outflows of direct investments, they suggest that there is a round tripping of capital.

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