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

Katarzyna Bilicka, Jing Xing and Yaxuan Qi

No 16068, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: 2021-04
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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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