ABSTRACT
Tax incentives are commonly used as a policy tool to promote economic development and to attract foreign direct investment (FDI). In the FDI context, an OECD report put it thus: tax incentives are ‘measures designed to influence the size, location or industry of an FDI investment project by affecting its relative cost or by altering the risks attached to it through inducements that are not available to comparable domestic investors’. 1 Alex Easson took a broader view, which is adopted in this chapter, explaining that tax incentives confer benefits in the form of tax expenditures that represent a statutorily favourable deviation from the normal benchmarks of a country’s tax system. 2 Compared to direct financial incentives, such as loan schemes, grants and subsidies, tax or fiscal incentives offer a more realistic policy tool to attract investment, particularly for developing economies, because there is no immediate need for governments to find cash to fund relevant new investment projects. 3
