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Tax-aided financial services companies and the cost of capital

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  • Annick Hespel
  • Michel Mignolet

Abstract

Over the past two decades, the governments of several European countries have implemented special tax devices to attract the finance centres of multinational companies. This paper determines how the cost of capital for investments made by multinationals is affected by the tax regimes, bringing into play the Irish financial services company, the Belgian co-ordination centre, the Dutch finance company and the Luxemburg company coupled with a Swiss finance branch. It gives evidence that intermediation of a tax-aided services company in the financing scheme of a foreign subsidiary provides an important tax saving. However, the home and source countries\' tax regimes influence the hierarchy of the less heavily taxed treasury and finance centres. The methodology relies on the marginal effective tax rates theory and consists of an extension of Alworth’s (1988) model to include treasury centres.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 21 (2000)
Issue (Month): 3 (September)
Pages: 349-374

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Handle: RePEc:ifs:fistud:v:21:y:2000:i:3:p:349-374

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  1. Lawrence H. Goulder & Philippe Thalmann, 1990. "Approaches to Efficient Capital Taxation: Leveling the Playing Field vs.Living by the Golden Rule," NBER Working Papers 3559, National Bureau of Economic Research, Inc.
  2. McKenzie, K.J., 1992. "The Implications of Risk and Irreversibility for the Measurement of Marginal Effective Tax Rates of Capital," Papers 137, Calgary - Department of Economics.
  3. Weichenrieder, Alfons J, 1996. " Transfer Pricing, Double Taxation, and the Cost of Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 445-52.
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Cited by:
  1. Christian Valenduc, 2004. "Corporate income tax and the taxation of income from capital:Some evidence from the past reforms and the present debate on corporate income taxation in Belgium," Taxation Papers 6, Directorate General Taxation and Customs Union, European Commission, revised Dec 2004.

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