Chinaplas 2021, Shengzhen, China April 13rd 2020 to April 16th 2020

TIMER:2021-06-01

Tax authorities worldwide are implementing voluntary disclosure schemes to recover tax on offshore investments. Such schemes are typically designed retrospectively following the bulk acquisition of information on offshore holdings, such as the recent ?Paradise? and ?Panama? papers. They offer an opportunity for affected taxpayers to make a voluntary disclosure, with reduced fine rates for truthful disclosure. We characterize the taxpayer/tax authority game with and without a scheme and show that a scheme increases net expected tax revenue, decreases illegal offshore investment, increases onshore investment, and could either increase or decrease total offshore investment (legal plus illegal).

We document that the first leak of customer information from a tax haven bank caused a sudden flight of deposits from tax havens and a sharp decrease in the market value of banks known to be assisting with tax evasion. The loss of market value was largest for the banks most strongly involved in tax evasion and zero for banks with no known ties to tax evasion. Subsequent leaks had qualitatively similar although smaller eects. Our findings suggest that whistleblowing in tax haven banks deters oshore tax evaders by increasing the perceived risk of committing and assisting with tax evasion.

We document that the first leak of customer information from a tax haven bank caused a sudden flight of deposits from tax havens and a sharp decrease in the market value of banks known to be assisting with tax evasion. The loss of market value was largest for the banks most strongly involved in tax evasion and zero for banks with no known ties to tax evasion. Subsequent leaks had qualitatively similar although smaller effects. Our findings suggest that whistleblowing in tax haven banks deters offshore tax evaders by increasing the perceived risk of committing and assisting with tax evasion.

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