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The use of tax havens in exemption regimes

Anna Gumpert, James Hines () and Monika Schnitzer ()

No 8943, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyzes the tax haven investment behavior of multinational firms from a country that exempts foreign income from taxation. High foreign tax rates generally encourage firms to invest in tax havens, though significant costs of reallocating taxable income dampen these incentives. The behavior of German manufacturing firms from 2002-2008 is consistent with this prediction: at the mean, one percentage point higher foreign tax rates are associated with three percentage point greater likelihoods of owning tax haven affiliates. This contrasts with earlier evidence for U.S. firms subject to home country taxation, which are more likely to invest in tax havens if they face lower foreign tax rates. Foreign tax rates appear to be unrelated to tax haven investments of German firms in service industries, possibly reflecting the difficulty they face in reallocating taxable income.

Keywords: Manufacturing FDI; Multinational Firms; Profit Shifting; Service FDI; Tax Avoidance; Tax Havens (search for similar items in EconPapers)
JEL-codes: F23 H87 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-iue and nep-pbe
Date: 2012-04
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Working Paper: The use of tax havens in exemption regimes (2012) Downloads
Working Paper: The Use of Tax Havens in Exemption Regimes (2011) Downloads
Working Paper: The use of tax havens in exemption regimes (2011) Downloads
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