We study corporate income tax competition when firms operating in multiple jurisdictions can shift income using financial planning strategies. Several such strategies, particularly intra-corporate lending, appear to be actively pursued by companies to reduce subnational corporate taxes in Canada. A simple theoretical model shows how interjurisdictional tax planning can give rise to asymmetries in jurisdictions' tax policies, with one jurisdiction becoming a "tax haven" to attract taxable income through financial transactions, while others set higher statutory rates. Further, increased competition from tax havens may paradoxically lead to tax increases by hightax jurisdictions. Analysis of data from administrative tax records suggests income shifting has pronounced effects on provincial tax bases in Canada. According to our preferred estimate, the elasticity of taxable income with respect to tax rates for "tax shifting" firms is 4.3, compared to 1.6 for other, comparable firms.

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Introduction 2 International Capital Income Taxation and Tax Competition 2.1 How should foreign investment income be taxed? 2.2 Tax competition and double taxation agreements 2.3 The role of public goods provision 2.4 Tax competition with multinational firms and portfolio investment 2.5 Transfer prices and international income shifting 2.6 The financial structure of firms 3 Tax Coordination 3.1 Fiscal externalities and the welfare effects of tax coordination 3.2 An example: Tax competition and the underprovision of public goods 3.3 Residence-based capital income taxation 3.4 Distortionary labour taxes 3.5 Tax competition and optimal redistributive income taxation v