An OECD working paper published on 26 November 2019 looks at the impact of increasing tax transparency and exchange of information (EOI) on cross-border financial activity by analysing data on bank deposits in international financial centres (IFCs). The paper uses a dataset from the Bank for International Settlements (BIS), giving bilateral data on bank deposits for up to 47 jurisdictions between the years 2000 and 2019. The paper looks at the changes in these deposits in response to the measures taken on tax transparency and EOI. The analysis looks at the bank deposits of non-bank financial institutions, governments, households, and corporations.

The working paper notes that since 2008 these bank deposits in international financial centres (IFCs) have fallen substantially, decreasing by 24% by the first quarter of 2019. Since the third quarter of 2011 the decrease has amounted to 11%.

This decrease could be due to various factors, including non-tax factors. However the study analyses changes in financial holdings against the dates when agreements on exchange of information were concluded. The results suggest that the developments in moving to greater transparency and exchange of information played a material role in the decrease in deposits in IFCs.

There have been substantial reductions in bank deposits in some jurisdictions while in other jurisdictions cross-border bank deposits have increased. However extensive statistical analysis performed as part of the study illustrates that when an agreement was signed between an IFC and a non-IFC there was an average reduction in bank deposits in the IFC in relation to the treaty partner jurisdiction of between 9% and 10% (for the years 2009 to 2014). When the automatic exchange of information commenced in 2017 or 2018 there was a further reduction in bank deposits of 22% in relation to the treaty partner (17% when the US FATCA is taken into account).

The paper concludes that the expansion of exchange of information globally has had a positive impact in encouraging tax compliance and reducing offshore bank deposits that may represent hidden wealth.

The working paper assesses further potential uses of international investment data in analysing the effects of tax transparency and exchange of information. The effect on portfolio holdings is one example of further study that could be performed. Other future uses of international investment data to analyse the effects of tax transparency could include assets such as real property or art that have not yet been covered by exchange of information agreements.