Havens will protect relocating firms, shielding them from the tax.
Garbarino ’15 [Carlo and Giulio Allevato; Summer 2015; Professor of Law at the Universita Bocconi, Grotius Research Scholar at the University of Michigan Law School, Hauser Global Visiting Faculty at the NYU Law School, Visiting Professor of Law at the University of Michigan Law School, Visiting Professor of Law at the University of Florida School of Law, Visiting Professor at the University of San Paulo, Visiting Scholar at the University of Michigan Law School, Visiting Professor at Sorbonne University, Paris, Visiting Scholar at Yale Law School; Assistant Professor of Tax Law at the SDA Bocconi School of Management, Ernst Mach Scholar at the Institute for Austrian and International Tax Law, Vienna University of Economics and Business, Ph.D. from the Universita Bocconi, International Tax, LL.M. from the University of Michigan Law School; Michigan Journal of International Law, “The Global Architecture of Financial Regulatory Taxes,” vol. 36]
The unilateral regulatory tax strategies that may be adopted by individual countries are especially vulnerable because they are exposed to (1) the substitution of taxable transactions with non-taxable transactions ("substitution effect") and (2) the relocation of transactions or firms subject to the regulatory taxes of other jurisdictions that do not impose such taxes ("relocation effect"). The most effective tool to counteract such opportunistic behaviour is for governments to act multilaterally and fully exchange information on the enforcement of regulatory taxes. Secrecy and lack of access to information are key enablers of un-cooperative behavior by countries that are used by firms to pursue relocation effects and prevent multilaterality. 55 Governments thus assign strategic value to tax information that concerns situations occurring outside their territorial reach, which specifically result in relocation effects, and therefore need information about relevant transactions relocated to favorable jurisdictions. Countries that, by exerting political pressure on these favorable jurisdictions, actually manage to obtain such information would be capable of counteracting [*619] the free-riding behavior of other countries that are willing to host relocated transactions which are taken out from the global reach of the financial transaction tax. However, given the growing interconnection of financial markets, countries' policies are increasingly influenced by external factors and, at the same time, individual countries cannot ignore the potential implications their conduct may have on the global market. This initial stage must therefore be followed by a second stage, in which comprehensive and coordinated interaction of most of the countries (multilateral cooperation) is pursued at the international level to prevent substitution and relocation effects and to achieve common goals.