Corporate tax planning and thin-capitalization rules: evidence from a quasi-experiment

Overesch, Michael; Wamser, Georg

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%T Corporate tax planning and thin-capitalization rules: evidence from a quasi-experiment
%A Overesch, Michael
%A Wamser, Georg
%J Applied Economics
%N 5
%P 563-573
%V 42
%D 2010
%K Corporate Income Tax; Multinationals; Thin-Capitalization Rule; Difference- in-Differences Estimation; Firm-Level Data
%= 2011-04-19T12:00:00Z
%~ http://www.peerproject.eu/
%> https://nbn-resolving.org/urn:nbn:de:0168-ssoar-242033
%X This paper investigates tax-planning behaviour by means of inter-company finance and the effectiveness of government countermeasures via thin-capitalization rules. A simple theoretical model which considers the financing decision of a multinational company is used to obtain empirical implications. The empirical analysis, based on German inbound investment data from 1996 to 2004, confirms a significant impact of tax-rate differentials on the use of inter-company debt. The effectiveness of the German thin-capitalization rule is tested by using legal amendments as natural experiments. The results suggest that thin-capitalization rules induce significantly lower internal borrowing. Hence, tax planning via internal finance is effectively limited by thin-capitalization rules.
%C USA
%G en
%9 journal article
%W GESIS - http://www.gesis.org
%~ SSOAR - http://www.ssoar.info