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The Effects of Economic Substance Act on Offshore Investment Structures and Tax Avoidance

ownership structures and reallocating resources to jurisdictions with substantive
economic activities are essential for long-term compliance and risk mitigation. The
findings underscore the Economic Substance Act’s effectiveness in curbing tax avoidance.
Policymakers should strengthen enforcement mechanisms, address potential loopholes,

and promote international cooperation to prevent regulatory arbitrage. Enhancing global
tax governance frameworks is essential to sustaining the success of initiatives such as the
Economic Substance Act and achieving greater tax equity.

5. Contributions and Implications

This study is among the first to empirically examine the effects of the Economic
Substance Act on corporate offshore investment structures and tax avoidance behaviors

in Taiwan. It reveals how international tax regulations reshape corporate strategies,
forcing firms to adjust governance and operational practices. The use of two-stage least
squares regression enhances the credibility of the findings, yielding credible evidence
of how regulatory interventions influence corporate decision-making while addressing

endogeneity concerns in empirical analyses.
The study enriches the literature on tax havens and corporate tax avoidance by
presenting a novel perspective on the role of regulatory measures in shaping corporate
behavior. The study fills a research gap by providing detailed evidence on firms’ strategic

responses to stricter compliance requirements. By examining the interaction between
regulatory interventions and corporate strategies, the study lays the groundwork for
further exploration of the long-term implications of economic substance requirements
for global tax governance. Moreover, for corporate practitioners, the study provides

actionable insights for aligning tax planning strategies with global compliance standards.
It emphasizes the importance of transparency and strategic alignment with economic
substance requirements to mitigate reputational and financial risks. Finally, the findings
reinforce the need for robust enforcement of economic substance regulations and enhanced

interjurisdictional collaboration to effectively combat tax avoidance.

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