CFC Rules and Investment Activity: The Role of the ATAD

Martina Rechbauer, Silke Rünger and Benedikt Sieghartsleitner

FinanzArchiv: Public Finance Analysis, 2025, vol. 81, issue 3, 191-245

Abstract: In this paper, we study whether the introduction of the controlled foreign corporations (CFC) rule provided by the Anti-Tax Avoidance Directive (ATAD) affects investment activities of multinational enterprises (MNEs) in low-tax countries. We study investment activities of MNEs from 26 European countries and examine whether parent firms reduced the share of i) subsidiaries and ii) fixed assets in low-tax countries after the introduction of the ATAD CFC rule. Our results show that parent firms decreased both the share of subsidiaries as well as the share of fixed assets in low-tax countries. In additional analyses, we find that the decrease in fixed assets cannot solely be attributed to a decrease in mobile assets (intangible and financial assets) but also to a decrease in real economic activities (tangible assets). Furthermore, while some of the decrease in investment activities in low-tax countries is compensated by an increase in fixed assets in foreign countries not subject to the CFC rule, we document an overall decrease in the share of foreign subsidiaries. We also show that the change in investment activities of MNEs depends on single design aspects of the ATAD CFC rule.More precisely, we find no change in the share of subsidiaries or fixed assets in low-tax countries if the home country of the parent firm i) offers an economic substance exemption or ii) is itself a low-tax country.

Keywords: ATAD; CFC rules; investment; low-tax subsidiaries (search for similar items in EconPapers)
JEL-codes: H20 H25 H26 H32 K34 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1628/fa-2026-0001

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