The effect of taxes on multinational debt location |
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| Authors: | Matteo P. Arena Andrew H. Roper |
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| Affiliation: | 1. Duke University, Fuqua School of Business, 100 Fuqua Drive, Durham, NC 27708, United States;2. Massachusetts Institute of Technology, Sloan School of Management, 100 Main Street, Cambridge, MA 02142, United States;3. University of North Carolina, Kenan-Flagler College of Business, Chapel Hill, NC 27599, United States;4. Brigham Young University, Marriott School of Business, 519 Tanner Bldg., Provo, UT 84602, United States;1. Department of Finance, Erasmus School of Economics, Burgemeester Oudlaan 50, 3062 PA Rotterdam, The Netherlands;2. Department of Finance, VU University Amsterdam, Tinbergen Institute, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands |
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| Abstract: | ![]()
We provide new evidence that differences in international tax rates and tax regimes affect multinational firms' debt location decisions. Our sample contains 8287 debt issues from 2437 firms headquartered in 23 different countries with debt-issuing subsidiaries in 59 countries. We analyze firms' marginal decisions of where to issue debt to investigate the influence of a comprehensive set of tax-related effects, including differences in personal and corporate tax rates, tax credit and exemption systems, and bi-lateral cross-country withholding taxes on interest and dividend payments. Our results show that differences in personal and corporate tax rates, the presence of dividend imputation or relief tax systems, the tax treatment of repatriated profits, and inter-country withholding taxes on dividends and interest significantly influence the decision of where to locate debt and the proportion of debt located abroad. Our results are robust to firm and issue specific factors and to the effect of legal regimes, debt market development, and exchange rate risk. |
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