Where Does Multinational Investment Go with Territorial Taxation? Evidence from the UK

Li Liu

No 2018/007, IMF Working Papers from International Monetary Fund

Abstract: In 2009, the United Kingdom changed from a worldwide to a territorial tax system, abolishing dividend taxes on foreign repatriation from many low-tax countries. This paper assesses the causal effect of territorial taxation on real investments, using a unique dataset for multinational affiliates in 27 European countries and employing the difference-in-difference approach. It finds that the territorial reform has increased the investment rate of UK multinationals by 15.7 percentage points in low-tax countries. In the absence of any significant investment reduction elsewhere, the findings represent a likely increase in total outbound investment by UK multinationals.

Keywords: WP; gross investment; tax rate; UK affiliate; retained earnings; foreign direct investment; corporate tax policy; multinational firms; UK multinational; investment by UK; tax country; investment response; Dividend tax; Corporate income tax; Wages; Private investment; Currencies; Global (search for similar items in EconPapers)
Pages: 49
Date: 2018-01-12
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Citations: View citations in EconPapers (8)

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