FDI motives and the use of tax havens: Evidence from South Korea

Despite the recent attention in the media and focus in the academic literature on tax havens and tax mitigation strategies, we know very little about how the use of tax havens relates to a firm’s internationalisation strategy. In this paper, we develop a conceptual model that explains how FDI into t...

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Bibliographic Details
Published inJournal of business research Vol. 135; pp. 644 - 662
Main Authors Driffield, Nigel, Jones, Chris, Kim, Jae-Yeon, Temouri, Yama
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.10.2021
Subjects
FDI Motives
Outward FDI
Profit shifting
South Korea
Tax Havens
South Korea
Outward FDI
Profit shifting
FDI Motives
Tax Havens
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Summary:Despite the recent attention in the media and focus in the academic literature on tax havens and tax mitigation strategies, we know very little about how the use of tax havens relates to a firm’s internationalisation strategy. In this paper, we develop a conceptual model that explains how FDI into tax havens relates to the standard FDI motives identified in the literature. We subsequently use a novel dataset that allows us to empirically investigate how these motives impact upon tax haven FDI in the South Korean context, which has experienced very rapid economic development over the last few decades and is now considered an advanced economy. We find that tax haven FDI is strongly linked to market-seeking and efficiency-seeking FDI, whereas its link with resources-seeking FDI is only found with respect to the most secretive tax haven locations. Furthermore, we find no relationship between technology seeking FDI and tax haven use. We argue that as tax haven use increases over time, the economic proceeds of outward FDI leak out and remain offshore.
ISSN:0148-2963
1873-7978
DOI:10.1016/j.jbusres.2021.06.061