Immobilizing Corporate Income Shifting: Should It Be Safe to Strip in the Harbor?

Thomas Gresik, Dirk Schindler and Guttorm Schjelderup

No 2015/31, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: Many subsidiaries can deduct interest payments on internal debt from their taxable income. By issuing internal debt from a tax haven, multinationals can shift income out of host countries through the interest rates they charge and the amount of internal debt they issue. We show that, from a welfare perspective, thin-capitalization rules that restrict the amount of debt for which interest is tax deductible (safe harbor rules) are inferior to rules that limit the ratio of debt interest to pre-tax earnings (earnings stripping rules), even if a safe harbor rule is used in conjunction with an earnings stripping rule.

Keywords: Multinational; Income-shifting; safe harbor; earnings stripping (search for similar items in EconPapers)
JEL-codes: H26 H73 K34 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015-11-18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Immobilizing corporate income shifting: Should it be safe to strip in the harbor? (2017)
Working Paper: Immobilizing Corporate Income Shifting: Should It Be Safe to Strip in the Harbor? (2016)
Working Paper: Immobilizing Corporate Income Shifting: Should it be Safe to Strip in the Harbour? (2015)
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