The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance

Traditional tax havens and conduit countries have different economic and tax characteristics. This paper shows that conduit countries are larger economies, have higher statutory and effective tax rates, have more bilateral treaties and are more transparent. Because of these characteristics, other countries apply lower withholding taxes on income flows to conduit countries compared to tax havens and do not apply CFC-rules on profit income generated in conduit countries. I assess quantitatively the role of tax havens and conduit countries in international corporate tax avoidance taking account of the literature on corporate tax revenue losses, treaty shopping and phantom investment. I allocate the global tax revenues losses due to profit shifting and treaty shopping to individual countries, using GDP, tax rates, FDI positions and FDI income. Traditional tax havens are only responsible for a small part of corporate tax avoidance. Conduit countries are involved in a much larger share, in particular on treaty shopping. A large share of the profit shifting losses is also due to different tax arrangements between other developed countries.