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Tax attractiveness and the location of German-controlled subsidiaries

Deborah Schanz (), Andreas Dinkel () and Sara Keller ()
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Deborah Schanz: Ludwig-Maximilians-University Munich
Andreas Dinkel: Ludwig-Maximilians-University Munich
Sara Keller: WHU – Otto Beisheim School of Management

Review of Managerial Science, 2017, vol. 11, issue 1, 251-297

Abstract: Abstract This paper analyzes whether taxation has an influence on the location decisions of multinational enterprises. We employ a novel set of 22 tax variables, such as the taxation of dividends and capital gains, withholding taxes, the existence of a group taxation regime, and thin capitalization rules. Furthermore, we use the Tax Attractiveness Index, a new aggregate measure containing the 22 tax variables. Our count data regression analysis is based on a novel hand-collected dataset consisting of the subsidiaries of German DAX30 companies in 97 countries. Controlling for non-tax effects, we find that a country’s tax environment has a significantly positive effect on the number of German-controlled subsidiaries and, therefore, on the location decisions of German multinational enterprises. Specifically, our analysis reveals that German multinational firms place affiliates in countries that offer favorable statutory tax rates, withholding taxes, double tax treaty networks, and holding incentives. Additionally, we find that the Tax Attractiveness Index has explanatory power in subsidiary location decisions and, therefore, it can be used as alternative composite measure, for example, when 22 single tax variables are not at disposal.

Keywords: International taxation; Tax attractiveness; Statutory tax rate; Location decision; Multinational enterprise; Composite index (search for similar items in EconPapers)
JEL-codes: H25 H73 F23 (search for similar items in EconPapers)
Date: 2017
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