Round+tripping‍‍‍

=**Introduction**=

Developing countries are known to be susceptible to illicit financial outflows, caused in part by aggressive __tax planning__ and enabled by the omnipresent existence of __tax havens__. Other causes for capital flight are the fear or prospect of financial crisis and the protection of wealth from potential currency devaluation.

However, not all capital that flees from developing countries stays out, but in turn returns to the country as foreign direct investment. In a process called “round tripping”, money ensuing from tax evasion visits offshore finance centres, during which the ultimate ownership of the capital is disguised through offshore secrecy arrangements, and is then reinvested in the country of origin.

=**Incentives**=

The incentives for capital flight are presented above. As for the incentives to round trip the capital, it has been noted that capital goes abroad and stays there waiting for opportunities to return back to the country of origin.

Additionally, many governments offer foreign investors lower tax rates, favorable land use rights, convenient administrative supports, superior property rights protection and a variety of subsidies. This is done due to the pressure to compete for investment capital. However, this discriminatory and preferential treatment of foreign investors provides an incentive to round trip.

=**Consequences and scale**=

There are various detrimental consequences of round tripping. On a national level, local businesses in developing countries are placed at a financial disadvantage, since they are unable to enjoy the advantages that foreign investors are provided (even in the cases in which the investors are also locals who have round-tripped their capital). Additionally, developing countries lose both their investment capital and the tax revenues that they would have received if the investment had stayed in the domestic economy to begin with. It has been estimated that developing countries have lost $385 billion annually in tax revenues foregone due to these practices.

On an even larger scale, the procedure of round tripping contributes to corrupting the integrity of the tax regimes and creates harmful economic distortions in which those that follow ethical practice are placed at a disadvantage.

Taking the People's Republic of China as an example, several researchers have estimated the scale of round tripping to be approximately 20-30 % of Foreign Direct Investment.