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The Tax Treatment of Interest Expenditures of Multinational Enterprises

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  • Joulia Ossokina

    ()
    (Erasmus University Rotterdam)

  • Herman Vollebergh

    ()
    (Erasmus University Rotterdam)

Abstract

This paper analyses the national tax treatment of interestexpenditures of multinational enterprises in a non-cooperative world. It is shown that the international tax systemgenerally leads to distortions in the capitaldecisions of multinational firms. In contrast to the existingliterature on the tax treatment of the expendituresof multinationals, it is found that the form and size of distortionscan differ per country depending on the stakea country has in the multinational. Furthermore, internationalisationof the firm's operations and ownership isdemonstrated to lead to less generous interest deduction rules ofindividual countries and in the limit mayresult in no deduction allowance at all.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 00-047/3.

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Date of creation: 09 Jun 2000
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Handle: RePEc:dgr:uvatin:20000047

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Web page: http://www.tinbergen.nl

Related research

Keywords: International Investment; Multinational Firms; Optimal Taxation; Interest Expenditures; R&D Expenditures;

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  1. Barbara J. Spencer & James A. Brander, 1982. "International R&D Rivalry and Industrial Strategy," Working Papers 518, Queen's University, Department of Economics.
  2. Kenneth A. Froot & James R. Hines, Jr., 1995. "Interest Allocation Rules, Financing Patterns, and the Operations of U.S. Multinationals," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 277-312 National Bureau of Economic Research, Inc.
  3. Huizinga, Harry, 1992. "The tax treatment of R&D expenditures of multinational enterprises," Journal of Public Economics, Elsevier, vol. 47(3), pages 343-359, April.
  4. Huizinga, H.P., 1989. "National tax policies towards product-innovating multinational enterprises," Discussion Paper 1989-34, Tilburg University, Center for Economic Research.
  5. Feldstein, Martin & Hartman, David, 1979. "The Optimal Taxation of Foreign," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 613-29, November.
  6. Rosanne Altshuler & Jack Mintz, 1996. "U.S. Interest Allocation Rules: Effects and Policy," Departmental Working Papers 199410, Rutgers University, Department of Economics.
  7. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-40, September.
  8. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
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