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The impact of thin-capitalization rules on the capital structure of multinational firms

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  • Buettner, Thiess
  • Overesch, Michael
  • Schreiber, Ulrich
  • Wamser, Georg

Abstract

This paper analyzes the effectiveness of limitations of the tax deductibility of interest expenses for multinational corporations, so-called thin-capitalization rules. The empirical investigation exploits a large micro-level panel dataset of multinational firms to analyze the effects of thin-capitalization rules on the capital structure of foreign subsidiaries located in OECD countries in the time period between 1996 and 2004. The findings indicate that thin-capitalization rules effectively reduce the incentive to use internal loans for tax planning but result in higher external debt.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 96 (2012)
Issue (Month): 11 ()
Pages: 930-938

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Handle: RePEc:eee:pubeco:v:96:y:2012:i:11:p:930-938

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Corporate income tax; Multinational firms; Capital structure; Thin-capitalization rules; Firm-level data;

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References

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Citations

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Cited by:
  1. Dwenger, Nadja & Steiner, Viktor, 2009. "Financial leverage and corporate taxation: Evidence from German corporate tax return data," arqus Discussion Papers in Quantitative Tax Research 61, arqus - Arbeitskreis Quantitative Steuerlehre.
  2. Jennifer Blouin & Harry Huizinga & Luc Laeven & Gaëtan Nicodème, 2013. "Thin capitalization rules and multinational firm capital structure," Working Papers 1323, Oxford University Centre for Business Taxation.
  3. Langenmayr, Dominika & Haufler, Andreas & Bauer, Christian J., 2012. "Should tax policy favor high- or low-productivity firms?," Discussion Papers in Economics 14277, University of Munich, Department of Economics.
  4. Hermann Buslei & Martin Simmler, 2012. "The Impact of Introducing an Interest Barrier: Evidence from the German Corporation Tax Reform 2008," Discussion Papers of DIW Berlin 1215, DIW Berlin, German Institute for Economic Research.
  5. Thiess Buettner & Michael Overesch & Georg Wamser, 2014. "Anti Profit-Shifting Rules and Foreign Direct Investment," CESifo Working Paper Series 4710, CESifo Group Munich.
  6. Brandstetter, Laura, 2014. "Do Corporate Tax Cuts Reduce International Profit Shifting?," Discussion Papers 2014/10, Free University Berlin, School of Business & Economics.
  7. Keller, Sara & Schanz, Deborah, 2013. "Measuring tax attractiveness across countries," arqus Discussion Papers in Quantitative Tax Research 143, arqus - Arbeitskreis Quantitative Steuerlehre.
  8. Peter Egger & Valeria Merlo & Georg Wamser, 2014. "Unobserved Tax Avoidance and the Tax Elasticity of FDI," CESifo Working Paper Series 4921, CESifo Group Munich.
  9. Heckemeyer, Jost H. & Overesch, Michael, 2013. "Multinationals' profit response to tax differentials: Effect size and shifting channels," ZEW Discussion Papers 13-045, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Michael Overesch & Georg Wamser, 2014. "Bilateral internal debt financing and tax planning of multinational firms," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 191-209, February.
  11. Matthias Dischinger & Bodo Knoll & Nadine Riedel, 2014. "The role of headquarters in multinational profit shifting strategies," International Tax and Public Finance, Springer, vol. 21(2), pages 248-271, April.
  12. Brandstetter, Laura, 2014. "Do corporate tax cuts reduce international profit shifting," arqus Discussion Papers in Quantitative Tax Research 162, arqus - Arbeitskreis Quantitative Steuerlehre.
  13. Thomas Hemmelgarn & Daniel Teichmann, 2013. "Tax Reforms and the Capital Structure of Banks," Taxation Papers 37, Directorate General Taxation and Customs Union, European Commission.

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