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Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA)

50 Pages Posted: 19 Sep 2017  

Lisa De Simone

Stanford Graduate School of Business

Rebecca Lester

Stanford Graduate School of Business

Kevin Markle

University of Iowa - Henry B. Tippie College of Business

Date Written: September 15, 2017

Abstract

We examine how increased reporting requirements for U.S. individuals with offshore assets affect the location of hidden investment assets. Specifically, we study the Foreign Account Tax Compliance Act (FATCA). FATCA requires foreign financial institutions to provide information to the U.S. government regarding U.S. account holders for the purpose of reducing offshore tax evasion. Using annual country-level data on investments in U.S. securities by foreign account holders from 2006 to 2015, we document a significant decrease in foreign portfolio investment to the U.S. from tax haven countries after signing on to FATCA, consistent with a decrease in “round-tripping” investment activity attributable to U.S. investors’ offshore tax evasion activities. However, we also find weak evidence of an increase in the amount of investment out of tax haven countries that did not agree to exchange information. These results suggest that some U.S. investors with hidden offshore assets moved assets to other countries that provide secrecy, thus enabling these investors to continue to evade U.S. tax liabilities. Our study contributes to both the academic literature on tax evasion as well as the analysis of similar yet controversial regulation being contemplated by numerous countries around the world.

Suggested Citation

De Simone, Lisa and Lester, Rebecca and Markle, Kevin, Transparency and Tax Evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA) (September 15, 2017). Stanford University Graduate School of Business Research Paper No. 17-62. Available at SSRN: https://ssrn.com/abstract=3037426

Lisa De Simone

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
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650-724-3083 (Fax)

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/lisa-de-simone

Rebecca Lester

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Kevin Markle (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States
319-335-1903 (Phone)
319-335-1956 (Fax)

HOME PAGE: http://tippie.uiowa.edu/people/profile/profile.aspx?id=1643762

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