German inbound investment, corporate tax planning, and thin-capitalization rules: a difference-in-differences approach

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 06-075

Classification and Topics

• Classification: Wirtschaft ; Tax Evasion and Avoidance ; Business Taxes and Subsidies including sales and value-added (VAT) ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Corporate Income Tax ; Multinationals ; Thin-Capitalization Rule ; Difference-in-Differences ; Firm-Level Data

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Overesch, Michael ; Wamser, Georg
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/24529
• Last update: 10.03.2025, 11:43 AM CET