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One-Way Treaty with the World: The U.S. Withholding Tax and the Netherlands Antilles

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Author Info

  • Leslie Papke

Abstract

This paper chronicles the experiences of the U.S. withholding tax on interest income. In 1984, the U.S. repealed its 30 percent withholding tax on interest income paid to foreign persons or corporations. While the tax raised little revenue, it had imposed substantial implicit costs on U.S. corporate borrowers. Since, prior to repeal, domestically issued bonds were subject either to withholding or strict information requirements, many U.S. multinationals raised funds through foreign finance subsidiaries, primarily in the Netherlands Antilles, to avoid the tax. Although the withholding tax rate was effectively reduced to zero in the U.S., this paper demonstrates that interest flows were highly sensitive to their after-tax cost. Copyright Kluwer Academic Publishers 2000

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File URL: http://hdl.handle.net/10.1023/A:1008705713629
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 7 (2000)
Issue (Month): 3 (May)
Pages: 295-313

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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:3:p:295-313

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: international interest withholding taxation; Netherlands Antilles; foreign tax haven;

References

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  1. Hines, J.R. & Rice, E.M., 1990. "Fiscal Paradise: Foreign Tax Havens And American Business," Papers 56, Princeton, Woodrow Wilson School - Discussion Paper.
  2. Jack Mintz & Henry Tulkens, 1984. "Commodity Tax Competition Between Member States of a Federation," Working Papers 558, Queen's University, Department of Economics.
  3. Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer, vol. 2(1), pages 85-106, February.
  4. Huizinga, H.P., 1994. "International interest withholding taxation: Prospects for a common European policy," Open Access publications from Tilburg University urn:nbn:nl:ui:12-155147, Tilburg University.
  5. Harry Grubert & Joel Slemrod, 1994. "The Effect of Taxes on Investment and Income Shifting to Puerto Rico," NBER Working Papers 4869, National Bureau of Economic Research, Inc.
  6. Leslie E. Papke, 1989. "International Differences in Capital Taxation and Corporate Borrowing Behavior: Evidence from the U.S. Withholding Tax," NBER Working Papers 3129, National Bureau of Economic Research, Inc.
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Cited by:
  1. Davies, Ronald B., 2003. "Tax Treaties, Renegotiations, and Foreign Direct Investment," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 33(2), pages 251-273, September.
  2. Robert McCauley, 2005. "Distinguishing global dollar reserves from official holdings in the United States," BIS Quarterly Review, Bank for International Settlements, September.
  3. Roger H. Gordon & James R. Hines Jr., 2002. "International Taxation," NBER Working Papers 8854, National Bureau of Economic Research, Inc.

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