Büttner, Thiess Overesch, Michael Schreiber, Ulrich Wamser, Georg
Year of Publication:
Discussion Paper Series 1 No. 2008,03
Deutsche Bundesbank, Frankfurt a. M.
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.
Corporate Income Tax Multinationals Leverage Thin-Capitalization Rules Firm-Level Data