Tax Information Exchange Influence on Czech Based Companies' Behavior in Relation to Tax Havens

Abstract

In recent years, borders between countries have been opened gradually thanks to globalization, which is reflected in minimal barriers to the movement of persons and capital. This situation could be potentially abused by taxpayers willing to shift the capital to preferential tax jurisdictions. Due to facts aforementioned, several instruments for tax administrators have been introduced. Bilateral and multilateral instruments are concluded with particular countries for the purpose of obtaining information about foreign residents staying abroad but also to avoid double taxation or double non-taxation. In recent years there has been an increased number of companies in the Czech Republic whose owners come from preferential tax jurisdiction from 12,676 up to 13,167. This paper is focused on the Czech taxpayers' reaction on concluding agreements concerning exchange of information in tax matters with preferential tax jurisdictions, the so-called "Tax havens". The Difference-in-Differences Method was carried out to predict the taxpayers' behavior. The model shows that the agreements work well as a preventive tool. If the Czech Republic concludes the agreement with the tax haven, the taxpayers lose their anonymity. This results in their relocation into tax havens that are not covered by the agreement in order to keep their anonymity.

Debt/Asset Ratio as Evidence of Profit-Shifting Behaviour in the Slovak Republic

“…According to Krejčí (2016), Slovak and Czech companies are moving their headquarters to tax havens mainly for tax reasons (44%) and for achieving anonymity for the real owner (44%). Rohan and Moravec (2017) verified the Czech companies owner's reaction to the newly concluded agreements concerning the tax information exchange. Their study confirms that the significant number of Czech companies' owners relocates into the jurisdictions that were not covered by the agreement on tax information exchange, using the difference in differences statistical technique.…”

International Corporate Structuring of Slovak Companies Using Tax Havens

“…Despite worldwide trends, Slovak companies continue to show gradual increases in direct ownership links to tax havens compared with, for example, the Czech Republic, where in recent years decline has been shown, a finding which has been considered paradoxical (Rohan and Moravec, 2017). One open field for potential future investigations is the list of tax havens prepared by Bisnode, ltd.…”

“…Another necessary direction in future research is to determine why the number of Slovak companies with direct ownership links to tax havens is constantly rising despite the fact that Slovakia is also committed to automatic tax and bank information exchange agreements (in operation since 2016). The results in this field can be inspired by the approach of Rohan & Moravec (2017). According to these authors, TIEAs (tax information exchange agreements) at least as a preventive tool have a direct impact on the behaviour of Czech MNEs in relation to tax havens, with reports showing a slight decline of Czech companies with direct ownership links to selected tax havens over the last few years.…”

Estimation of international tax planning impact on corporate tax gap in the Czech Republic

“…There can be another approach. Rohan and Moravec (2017) dealt with the tax information exchange impact on the number of companies relocated and on the amount of foreign direct investments shifted. The profi t shifting or the tax avoidance is being widely infl uenced by agreed instruments on exchange of information.…”

“…This indicates the importance of anonymity. On the other hand, companies that remain in the jurisdictions after conclusion of such instruments increase investments due to better tax conditions (Rohan & Moravec, 2017).…”