United nations of tax incentives

Part I: Theoretical Background
low-cost loans or infrastructure improvements can be substitutes 
or complements to tax incentives. If challenges exist to using tax 
incentives (for example, due to agreements not to use particular types 
of tax incentives or because of the structure of the tax regime in the 
foreign investor’s home country), then countries will likely make 
greater use of non-tax incentives.
A different form of investment incentives is tax-related, but 
not generally included in the list of types of tax incentives. These 
disguised tax incentives can include liberal safe harbours in transfer 
pricing rules, provisions that facilitate aggressive tax planning and 
even tacit forms of lax tax enforcement. For example, the United States 
“check-the-box” regulations can be viewed as a tax incentive to allow 
United States multinational entities to compete more effectively with 
non-United States multinational entities by using hybrid entities to 
minimize foreign tax liability in high-tax countries.
V . 
Role of non-tax factors
Deciding whether and where to invest is a complex decision. It is not 
surprising that tax considerations are just one factor in these decisions. 
Commentators have listed several factors that influence investment 
decisions, particularly those of foreign investors.
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A partial list of 
these factors is set forth in the box below.
11 
Sebastian James, “Incentives and Investments: Evidence and Policy Implica-
tions”, World Bank Group (Washington, D.C., World Bank Group, 2009).
Non-tax factors influencing investment decisions
1. Consistent and stable macroeconomic and fiscal policy.
2. Political stability.
3. Adequate physical, financial, legal and institutional 
infrastructure.
4. Effective, transparent and accountable public administration.
5. Skilled labour force and flexible labour code governing 
employer and employee relations.
6. Availability of adequate dispute resolution mechanisms.

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Design and Assessment of Tax Incentives
Most surveys of business executives conclude that taxes were 
often not a major consideration in deciding whether and where to 
invest. For most types of investments, there is a two-part decision. 
First, from a business perspective, which country would be the best 
choice for achieving a particular investment objective? Second, from 
a tax perspective, how would activities be structured to minimize tax 
liabilities (both on a country basis and an aggregate worldwide basis)?