The Effects of Multinationals? Profit Shifting Activities on Real Investments

Arbeitspapier

This paper investigates whether the size of multinationals? real investments in a high-tax country is affected by profit shifting activities. A simple theoretical analysis shows that tax rates abroad impact the cost of capital in the presence of profit shifting activities of multinational companies. As profit shifting opportunities constitute a competitive advantage, the respective size of investments should theoretically increase if profits can be shifted to a lower taxing country. An empirical analysis, based on a panel of German inbound investments, confirms a positive tax response of real investments with a decreasing tax rate at the foreign direct investor?s home country. Hence, the results suggest that the size of foreign investments in a high-tax country is positively affected by lower foreign taxation of shifted profits.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 07-071

Classification and Topics

• Classification: Wirtschaft ; Fiscal Policies and Behavior of Economic Agents: Firm ; Business Taxes and Subsidies including sales and value-added (VAT) ; Multinational Firms; International Business ; International Investment; Long-term Capital Movements
• Subject: Taxation ; Multinationals ; Profit Shifting ; Investment Decisions ; Firm-level Data ; Gewinnverlagerung ; Multinationales Unternehmen ; Investition ; Direktinvestition ; Steuerbelastung ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Overesch, Michael
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/24656
• Last update: 10.03.2025, 11:44 AM CET