Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/19715 
Year of Publication: 
2008
Series/Report no.: 
Discussion Paper Series 1 No. 2008,03
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
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

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