Resource title

German inbound investment, corporate tax planning, and thin-capitalization rules: a difference-in-differences approach

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Resource description

This paper investigates tax planning behavior by means of inter-company finance and the effectiveness of fighting back via thin-capitalization rules. A simple theoretical model, which considers the financing decision of a multinational company, is used to obtain empirical implications. The empirical analysis, based on German inbound investment data from 1996 until 2004, supports a significant impact of tax rate differences on the use of intra-company debt. The effectiveness of the German thin-capitalization rule is tested by using legal amendments as natural experiments. The results suggest that the German thin-capitalization rule induces significantly lower intra-firm debt-levels of inbound investments. Hence, tax planning via intra-firm finance is effectively limited.

Resource author

Michael Overesch, Georg Wamser

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Resource language

eng

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text/html

Resource resource URL

http://hdl.handle.net/10419/24529

Resource license

Adapt according to the presented license agreement and reference the original author.