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The role of multinational taxation in the first reversal of foreign direct investment flows in the euro area

Author

Listed:
  • Di Nino, Virginia
  • Semjonovs, Andrejs

Abstract

The US corporate tax reform that entered into force at the beginning of 2018 resulted in foreign direct investment flows reversing for the first time in the euro area. The episode is explained fully by developments in countries which are financial centres, where disinvestment operations were carried out via special purpose entities, initially through transactions in equities and later also in debt securities. Besides the bilateral flows with the United States, which were the first to be affected, foreign direct investment flows to and from offshore centres also reversed, reflecting the complex geographical structure of capital allocation by US multinational enterprises. JEL Classification: F32, F38

Suggested Citation

  • Di Nino, Virginia & Semjonovs, Andrejs, 2020. "The role of multinational taxation in the first reversal of foreign direct investment flows in the euro area," Economic Bulletin Boxes, European Central Bank, vol. 2.
    • Handle: RePEc:ecb:ecbbox:2020:0002:2
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    File URL: https://www.ecb.europa.eu//pub/economic-bulletin/focus/2020/html/ecb.ebbox202002_02~630f51425a.en.html
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    Citations

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    Cited by:

    1. Lodge, David & Pérez, Javier J. & Albrizio, Silvia & Everett, Mary & De Bandt, Olivier & Georgiadis, Georgios & Ca' Zorzi, Michele & Lastauskas, Povilas & Carluccio, Juan & Parrága, Susana & Carvalho,, 2021. "The implications of globalisation for the ECB monetary policy strategy," Occasional Paper Series 263, European Central Bank.
    2. Di Filippo, Gabriele & Pierret, Frédéric, 2020. "Key Features of Captive Financial Institutions and Money Lenders (sector S127) in Luxembourg," MPRA Paper 111872, University Library of Munich, Germany, revised Dec 2020.

    More about this item

    Keywords

    financial centres; Foreign direct investment; multinationals; profit shifting practices; special purpose entities;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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