Bilateral internal debt financing and tax planning of multinational firms

Bilateral internal debt financing and tax planning of multinational firms This paper examines how taxes affect bilateral internal debt financing among foreign entities of multinational firms. Our data allows us to construct precise bilateral tax-rate differentials between borrowers and lenders of internal debt, which are found to be positively related to internal debt financing of borrowing entities. Compared with previous studies, the estimated tax-elasticity of internal debt exceeds earlier findings by far, most probably accruing to the bilateral specification of tax incentives. Additional investigations on whether and to what extent countries effectively impose anti-tax-avoidance measures show that thin-capitalization rules in host countries are particularly effective. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Bilateral internal debt financing and tax planning of multinational firms

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Publisher
Springer Journals
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-012-0339-3
Publisher site
See Article on Publisher Site

Abstract

This paper examines how taxes affect bilateral internal debt financing among foreign entities of multinational firms. Our data allows us to construct precise bilateral tax-rate differentials between borrowers and lenders of internal debt, which are found to be positively related to internal debt financing of borrowing entities. Compared with previous studies, the estimated tax-elasticity of internal debt exceeds earlier findings by far, most probably accruing to the bilateral specification of tax incentives. Additional investigations on whether and to what extent countries effectively impose anti-tax-avoidance measures show that thin-capitalization rules in host countries are particularly effective.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jan 10, 2013

References

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