Anti profit-shifting rules and foreign direct investment |
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Authors: | Thiess Buettner Michael Overesch Georg Wamser |
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Affiliation: | 1.University of Erlangen-Nuremberg and CESifo,Nuremberg,Germany;2.University of Cologne,Cologne,Germany;3.University of Tuebingen and CESifo,Tuebingen,Germany |
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Abstract: | This paper explores the effects of unilateral tax provisions aimed at restricting multinationals’ tax planning on foreign direct investment (FDI). Using a unique dataset which allows us to observe the worldwide activities of a large panel of multinational firms, we test how limitations of interest tax deductibility, so-called thin-capitalization rules, and regulations of transfer pricing by the host country affect investment and employment of foreign subsidiaries. The results indicate that introducing a typical thin-capitalization rule or making it more tight exerts significant adverse effects on FDI and employment in high-tax countries. Moreover, in countries that impose thin-capitalization rules, the tax-rate sensitivity of FDI is increased. Regulations of transfer pricing, however, are not found to exert significant effects on FDI or employment. |
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