The impact of thin-capitalization rules on multinationals' financing and investment decisions

Thiess Büttner, Michael Overesch, Ulrich Schreiber and Georg Wamser

No 2008,03, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: This paper analyzes the effectiveness of thin-capitalization rules in preventing debt finance by intercompany loans and explores their consequences for corporate decisions. A theoretical discussion emphasizes that limitations of the deduction of interest owed to foreign affiliates would not only affect multinationals' capital structure choice but also investment. An empirical investigation exploits a large firm-level panel dataset of multinationals in order to analyze the impact of thin-capitalization rules on capital structure choice and investment in the OECD and some further European countries in the time period between 1996 and 2004. The results indicate that thin-capitalization rules are effective in curbing tax planning via intercompany loans. However, investment is found to be adversely affected.

Keywords: Corporate Income Tax; Multinationals; Leverage; Thin-Capitalization Rules; Firm-Level Data (search for similar items in EconPapers)
JEL-codes: G32 H25 H26 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cfn, nep-eec and nep-pbe
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Citations: View citations in EconPapers (13)

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https://www.econstor.eu/bitstream/10419/19715/1/200803dkp.pdf (application/pdf)

Related works:
Working Paper: The Impact of Thin-Capitalization Rules on Multinationals’ Financing and Investment Decisions (2006)
Working Paper: The Impact of Thin-Capitalization Rules on Multinationals' Financing and Investment Decisions (2006)
Working Paper: The Impact of Thin-Capitalization Rules on Multinationals? Financing and Investment Decisions (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:7114

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