Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/24529
Authors: 
Overesch, Michael
Wamser, Georg
Year of Publication: 
2006
Series/Report no.: 
ZEW Discussion Papers 06-75
Abstract: 
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.
Subjects: 
Corporate Income Tax
Multinationals
Thin-Capitalization Rule
Difference-in-Differences
Firm-Level Data
JEL: 
H26
H25
G32
Document Type: 
Working Paper

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