Fiscal Paradise: Foreign Tax Havens and American Business
James R. Hines, Jr., Eric M. Rice
NBER Working Paper No. 3477 (Also Reprint No. r1868)
The offshore tax haven affiliates of American corporations account for more than a quarter of US foreign investment, an nearly a third of the foreign profits of US firms. This paper analyzes the origins of this tax haven activity and its implications for the US and foreign governments. Based on the behavior of US fins in 1982, it appears that American companies report extraordinarily high profit rates on both their real and their financial investments in tax havens. We calculate from this behavior that the tax rate that maximizes tax revenue for a typical haven is around 6%. The revenue implications for the US are more complicated, since tax havens may ultimately enhance the ability of the US government to tax the foreign earnings of American companies.
Document Object Identifier (DOI): 10.3386/w3477
Published: Quarterly Journal of Economics, vol 109, February 1994, pp 149-182
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