Real Responses to Anti-Tax Avoidance: Evidence from the UK Worldwide Debt Cap

Katarzyna Bilicka, Yaxuan Qi and Jing Xing

No 9044, CESifo Working Paper Series from CESifo

Abstract: We analyze how multinational firms reallocate real operations and debt across their affiliates in response to anti-tax avoidance policies. The UK introduced a worldwide debt cap in 2010, generating a quasi-natural experiment that limited interest deductibility for a group of multinational firms. We find that multinationals affected by the reform reduced the amount of debt held in the UK and increased debt held abroad. Affected multinationals reallocated a share of their real operations away from the UK. Our findings provide causal evidence for tax-motivated debt and real activity reallocation within multinationals and show how multinationals can circumvent tax avoidance regulations.

Keywords: debt shifting; multinational companies; capital reallocation (search for similar items in EconPapers)
JEL-codes: H25 H26 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-eur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Real responses to anti-tax avoidance: Evidence from the UK Worldwide Debt Cap (2022)
Working Paper: Real Responses to Anti-tax Avoidance: Evidence from the UK Worldwide Debt Cap (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9044

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