Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273017 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
ETLA Working Papers No. 90
Publisher: 
The Research Institute of the Finnish Economy (ETLA), Helsinki
Abstract: 
This paper studies the performance of interest limita- tion rules during business cycles. It employs register data on Finnish affiliates of multinational enterprises (MNEs) to study both thin-capitalization rules (TCRs) and earnings-stripping rules (ESRs). Both types of rules are found to become tighter in economic downturns: TCRs due to higher debt-to-equity ratios and ESRs due to lower company profits. Among equally tight interest limitation rules, TCRs are found to provide less variation and less pro-cyclical outcomes by increasing the compa- ny tax burden less than ESRs in an economic downturn. While ESRs increase the tax burden of Finnish compa- nies by 17.5%-19.3% following the 2008 global financial crisis, for TCRs the increase is less than 10%. Among the ESRs, we find that an EBIT rule induces tighter tax treat- ment in economic downturns than an EBITDA rule. How- ever, the differences between ESRs remain very small.
Subjects: 
Business cycles
Corporate income taxation
Anti-tax avoidance rules
Thin-Capitalization Rules (TCRs)
Earnings Stripping Rules (ESRs)
JEL: 
H25
H26
F44
Document Type: 
Working Paper

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