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Title:The impact of thin-capitalization rules on multinationals' financing and investment decisions PDF Logo
Authors:Büttner, Thiess
Overesch, Michael
Schreiber, Ulrich
Wamser, Georg
Issue Date:2008
Series/Report no.:Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2008,03
Abstract:This paper analyzes the effectiveness of thin-capitalization rules in preventing debt finance by intercompany loans and explores their consequences for corporate decisions. A theoretical discussion emphasizes that limitations of the deduction of interest owed to foreign affiliates would not only affect multinationals' capital structure choice but also investment. An empirical investigation exploits a large firm-level panel dataset of multinationals in order to analyze the impact of thin-capitalization rules on capital structure choice and investment in the OECD and some further European countries in the time period between 1996 and 2004. The results indicate that thin-capitalization rules are effective in curbing tax planning via intercompany loans. However, investment is found to be adversely affected.
Subjects:Corporate Income Tax
Multinationals
Leverage
Thin-Capitalization Rules
Firm-Level Data
JEL:G32
H26
H25
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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