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Conduit Entities: Implications of Indirect Tax-Efficient Financing Structures for Real Investment

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  • Jack M. Mintz

    ()
    (University of Toronto and C. D. Howe Institute)

Abstract

As well known, companies shift income from high to low tax jurisdictions. Typically, profit shifting is achieved by “direct” financing structures whereby companies use debt finance in the high tax entity and equity finance in the low tax entity. However, certain tax policies can lead to “indirect” financing structures whereby a conduit entity provides an opportunity to achieve at least two deductions for interest expenses for an investment made in the host country. The effect of “direct” and “indirect” financing structures on real investment is compared.

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File URL: http://www-2.rotman.utoronto.ca/iib/ITP0410.pdf
File Function: second version, 2004
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Bibliographic Info

Paper provided by International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto in its series International Tax Program Papers with number 0410.

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Length: 29 pages
Date of creation: Apr 2003
Date of revision: Sep 2004
Publication status: Published under same title in International Tax and Public Finance, vol. 11, no. 4, pp. 419-34.
Handle: RePEc:ttp:itpwps:0410

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Keywords: Business taxes; Multi-national finance and investment;

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References

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  1. Harry Huizinga, 1994. "International interest withholding taxation: Prospects for a common European policy," International Tax and Public Finance, Springer, vol. 1(3), pages 277-291, October.
  2. Haufler, A. & Schjelderup, G., 1999. "Corporate Tax Systems and Cross Country Profit Shifting," Papers 1/99, Norwegian School of Economics and Business Administration-.
  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.
  4. Thomas A. Gresik, 2001. "The Taxing Task of Taxing Transnationals," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 800-838, September.
  5. Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, vol. 88(6), pages 1149-1168, June.
  6. Rosanne Altshuler & Jack Mintz, 1994. "U.S. Interest Allocation Rules: Effects and Policy," NBER Working Papers 4712, National Bureau of Economic Research, Inc.
  7. Alfons Weichenrieder, 1996. "Anti-tax-avoidance provisions and the size of foreign direct investment," International Tax and Public Finance, Springer, vol. 3(1), pages 67-81, January.
  8. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
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