To avoid another Cyprus style crisis, the EU must understand how it helps to create tax havens.

The recent Cyprus crisis has thrown the problems posed by tax havens into sharp relief. But what determines which countries become tax havens? Achim Kemmerling argues that tax havens tend to occur when small countries stand to benefit from aligning their legal framework with that of a larger country. For countries such as Cyprus, EU accession and the adoption of the EU’s legal framework has greatly aided the transition to tax haven status.