handbook-tb

Eric M. Zoltthat offers tax privileges. This problem most often arises with the useof tax holidays and export processing zones. A further problem sometimesoccurs where a foreign investor acquires control of an existinglocal enterprise and instead of contributing new capital to modernizethe enterprise, the investor strips it of its useful assets and simplydisappears. 35Some countries have attempted to counter the “fly-by-night”problem by introducing “clawback” provisions. For example, a countrycan grant a tax holiday for a 5-year period, but only if the venturecontinues for a period of 10 years. If the venture is terminated beforethe end of the ten-year period, any tax “spared” must be repaid. Thedifficulty with such a provision is that the investor may have vanishedbefore it is possible to claw back any of the forgiven tax liability.2.2.3 Review and sunset provisionsThe costs and benefits of tax incentives are not easy to evaluate and arehard to quantify and estimate. Incentives that may work well in onecountry or region may be ineffective in another context. Tax incentiveregimes in many countries have evolved from general tax holidays toincentive regimes that are more narrowly targeted.It therefore may make sense (a) to limit the duration of taxincentive regimes to reduce the potential costs of unsuccessful orpoorly designed programmes by including a specific “sunset” provisionas part of the original legislation; (b) to design incentive regimesto require information reporting by beneficiaries to investment agenciesand to specify what government agency has responsibility formonitoring and enforcing qualification and any recapture provisions;and (c) to require an evaluation as to the costs and benefits of specifictax incentive regimes and to specify the timing of the evaluation andthe parties responsible for conducting the review.35This latter problem is not necessarily linked to the availability of taxincentives, although the ability to make a tax-free capital gain is an addedattraction to the asset stripper.480