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International taxation and MNE investment: evidence from the UK change to territoriality


  • Li Liu

    (Oxford University Centre for Business Taxation)


In 2009, the United Kingdom switched from a worldwide taxation system to a territorial system which exempts all foreign-earned active income from taxation. This reform fundamentally changes the dividend tax imposed on UK multinationals in many low- tax countries. In this paper I use data on multinational affiliates located in 27 European countries and employ the difference-in-differences approach to assess the causal effect of dividend exemption on real investment by UK-owned multinational affiliates. I find that UK's switch to dividend exemption has increased outbound investment by UK multinationals by around 15.7 percentage points in countries with a lower corporate tax rate than the UK. The observed increase, though temporary in nature, represents an addition in aggregate investment, as there is no evidence on a concurrent decrease in investment by UK multinationals in high-tax countries or in the UK.

Suggested Citation

  • Li Liu, 2015. "International taxation and MNE investment: evidence from the UK change to territoriality," Working Papers 1525, Oxford University Centre for Business Taxation.
  • Handle: RePEc:btx:wpaper:1525

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    Cited by:

    1. Hasegawa, Makoto & Kiyota, Kozo, 2017. "The effect of moving to a territorial tax system on profit repatriation: Evidence from Japan," Journal of Public Economics, Elsevier, vol. 153(C), pages 92-110.
    2. Dhammika Dharmapala, 2016. "The Economics of Corporate and Business Tax Reform," CESifo Working Paper Series 5864, CESifo.

    More about this item


    foreign direct investment; corporate tax policy; multinational firms;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General


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