Bilateral internal debt financing and tax planning of multinational firms

Michael Overesch () and Georg Wamser

Review of Quantitative Finance and Accounting, 2014, vol. 42, issue 2, 209 pages

Abstract: This paper examines how taxes affect bilateral internal debt financing among foreign entities of multinational firms. Our data allows us to construct precise bilateral tax-rate differentials between borrowers and lenders of internal debt, which are found to be positively related to internal debt financing of borrowing entities. Compared with previous studies, the estimated tax-elasticity of internal debt exceeds earlier findings by far, most probably accruing to the bilateral specification of tax incentives. Additional investigations on whether and to what extent countries effectively impose anti-tax-avoidance measures show that thin-capitalization rules in host countries are particularly effective. Copyright Springer Science+Business Media New York 2014

Keywords: Capital structure; Corporate taxation; Bilateral tax-rate differentials; Internal debt; Firm-level data; G30; G32; H24; H25 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:42:y:2014:i:2:p:191-209

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DOI: 10.1007/s11156-012-0339-3

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