Negotiated Tax Havens

Recently, the intersection of state aid and international tax has acquired a high profile in the European Union. In response, important tax and accounting policy changes are being proposed or implemented. However, these changes are predicated on the assumption that unfair tax ruling practices by host country governments are pervasive, and significantly benefit foreign-owned companies. Yet, there is no empirical evidence as to whether this is the case. We find preliminary evidence, based on an examination of effective tax rates, that foreign-owned companies benefit from favorable tax treatment more in the European Economic Area, and in countries that previously granted illegal state aid. This suggests recent investigations are warranted and that any country can operate as a tax haven, in fact but not in appearance, without greater supervision and transparency.