Influences of preferential tax regimes provided to attract non-resident investment.

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This paper examines the influences of preferential tax regimes implemented in developing countries aimed at attracting non-resident investment. It is argued that industrialized countries have the capacity to enact and/or intensify domestic rules to nullify the attractiveness and negative influences of foreign preferential tax regimes. Industrialized countries should not blame developing countries for negative influences brought by implementing these regimes, if they decide not to take any action or even conclude tax sparing provisions in bilateral conventions to approve the implementation of these regimes in contracting parties. As for developing countries, even the successful preferential tax regimes can bring the host economies undesirable influences, which cannot be defeated by the traditional strategy, ring fencing. These undesirable influences are the inherent complications of utilizing tax factors to attract non-resident investment.

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