The impact of thin-capitalization rules on multinationals' financing and investment decisions

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2008,03

Classification and Topics

• Classification: Wirtschaft ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Tax Evasion and Avoidance ; Business Taxes and Subsidies including sales and value-added (VAT)
• Subject: Corporate Income Tax ; Multinationals ; Leverage ; Thin-Capitalization Rules ; Firm-Level Data ; Multinationales Unternehmen ; Kapitalstruktur ; Fremdkapital ; Steuerrecht ; Steuerwirkung ; Internationale Finanzierung ; Investition ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Büttner, Thiess ; Overesch, Michael ; Schreiber, Ulrich ; Wamser, Georg
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/19715
• Last update: 10.03.2025, 11:43 AM CET