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NTU Management Review
Vol. 35 No. 1 Apr. 2025, 89-140
https://doi.org/10.6226/NTUMR.202504_35(1).0003

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

經濟實質法案對企業境外投資架構及避稅之影響

Ming-Chin Chen, Department of Accounting, National Chengchi University
陳明進 / 國立政治大學會計學系
Jui-Chih Wang, Department of Accounting Information, National Taipei University of Business
汪瑞芝 / 國立臺北商業大學會計資訊系
Chen-Yu Tsai, PricewaterhouseCoopers Financial Advisory Services Company, Ltd.
蔡鎮宇 / 普華國際財務顧問有限公司
Received 2023/8, Final revision received 2024/12

Abstract
This study investigates the effects of the Economic Substance Act, which was enacted
since 2019, on corporate offshore investment structures and tax avoidance behaviors,
particularly as they pertain to tax havens. Regression analysis of data on Taiwan Stock
Exchange and Taipei Exchange companies in Taiwan (2016-2021) is conducted. The
results indicate that the Economic Substance Act has discouraged companies from
establishing subsidiaries in tax havens, with existing subsidiaries in such jurisdictions
being more likely to be liquidated or relocated to non-tax haven areas. Furthermore,
the act has led to reductions in the maximum number of ownership layers in offshore
investment structures and in revenues reported by tax haven-based subsidiaries. These
findings reflect the streamlining of corporate offshore investment structures and a decline
in transactions conducted in tax havens. Finally, after the implementation of the act, tax
avoidance activities through tax havens decreased, as evidenced by a considerable increase
in corporate effective cash tax rates. The findings suggest that in an environment where
tax incentives in tax havens are diminishing, companies should relocate core income-
generating activities to locations where firms’ economic value is created.

【Keywords】Economic Substance Act, offshore investment structures, tax avoidance

領域主編：王泰昌教授

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