From tax evasion to tax planning

This paper analyzes within a simple model how a removal of bank secrecy can impact tax revenues and banks'profitability, assuming that offshore centers are able to offer sophisticated but legal, tax planning. Two alternative regimes are considered. A first, in which there is strict bank secrecy and a second, where there is international information exchange for tax purposes. In particular, we show that sharing tax information with onshore countries can be a dominant strategy for an OFC if there is enough scope for providing tax planning. Moreover, a partial reduction of tax liabilities can already prompt OFCs to voluntarily exchange relevant tax information. We also discuss the conditions under which the possible removal of bank secrecy may reduce or increase the onshore country's tax revenue.