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The Use of Tax Havens in Exemption Regimes

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  • Anna Gumpert
  • James R. Hines, Jr.
  • Monika Schnitzer

Abstract

This paper analyzes the tax haven investment behavior of multinational firms from a country that exempts foreign income from taxation. High foreign tax rates generally encourage firms to invest in tax havens, though significant costs of reallocating taxable income dampen these incentives. The behavior of German manufacturing firms from 2002-2008 is consistent with this prediction: at the mean, one percentage point higher foreign tax rates are associated with three percentage point greater likelihoods of owning tax haven affiliates. This contrasts with earlier evidence for U.S. firms subject to home country taxation, which are more likely to invest in tax havens if they face lower foreign tax rates. Foreign tax rates appear to be unrelated to tax haven investments of German firms in service industries, possibly reflecting the difficulty they face in reallocating taxable income.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17644.

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Date of creation: Dec 2011
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Handle: RePEc:nbr:nberwo:17644

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Cited by:
  1. Shafik Hebous, 2011. "Money at the Docks of Tax Havens: A Guide," CESifo Working Paper Series 3587, CESifo Group Munich.
  2. Bauer, Christian J. & Langenmayr, Dominika, 2013. "Sorting into outsourcing: Are profits taxed at a gorilla's arm's length?," Journal of International Economics, Elsevier, vol. 90(2), pages 326-336.
  3. Dwenger, Nadja & Steiner, Viktor, 2012. "Profit Taxation And The Elasticity Of The Corporate Income Tax Base: Evidence From German Corporate Tax Return Data," National Tax Journal, National Tax Association, vol. 65(1), pages 118-50, March.
  4. Christa Hainz & Tatjana Nabokin, 2013. "Measurement and Determinants of Access to Loans," CESifo Working Paper Series 4190, CESifo Group Munich.
  5. Shafik Hebous & Vilen Lipatov, 2011. "A Journey from a Corruption Port to a Tax Haven," CESifo Working Paper Series 3620, CESifo Group Munich.

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