Jakob Brounstein, Institute for Fiscal Studies

Can a country reduce its exposure to tax havens, and what are the consequences? We analyze the effects of a corporate tax surcharge applied by Ecuador since 2015 to its domestic firms whose owners are in tax havens. This reform was made possible by the prior establishment of an ownership registry in 2012. We compare the behavior of firms with tax haven owners at baseline (``exposed firms''), versus other internationally-owned firms, in a difference-in-differences design. The reform induced 12 percent of exposed firms to reduce their tax haven ownership to zero, by substituting towards foreign non-haven owners. Newly reported owners are more likely to consist of individuals, rather than firms, thus raising beneficial ownership transparency. Exposed firms also increased their corporate tax payments by 15%, without reducing their employment and investment in Ecuador. Yet, transactions between exposed firms and tax haven parties did not decrease. Overall, the policy which combined a ``flashlight'' (the ownership registry) and a ``stick'' (the tax surcharge) was effective at raising transparency and mitigating corporate tax erosion.