Taxes and the financial structure of German inward FDI

  • The paper analyses the financial structure of German inward FDI. From a tax perspective, intra-company loans granted by the parent should be all the more strongly preferred over equity the lower the tax rate of the parent and the higher the tax rate of the German affiliate. From our study of a panel of more than 8,000 non-financial affiliates in Germany, we find only small effects of the tax rate of the foreign parent. However, our empirical results show that subsidiaries that on average are profitable react more strongly to changes in the German corporate tax rate than this is the case for less profitable firms. This gives support to the frequent concern that high German taxes are partly responsible for the high levels of intracompany loans. Taxation, however, does not fully explain the high levels of intra-company borrowing. Roughly 60% of the cross-border intra-company loans turn out to be held by firms that are running losses. JEL - Klassifikation H25 , F23 .

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Author:Fred Ramb, Alfons J. WeichenriederORCiDGND
Parent Title (German):CESifo GmbH: CESifo working papers ; No. 1355 : Category 1, Public finance
Place of publication:M├╝nchen
Document Type:Working Paper
Date of Publication (online):2005/04/11
Year of first Publication:2004
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/04/11
Tag:Germany; financial structure; foreign direct investment; taxation
GND Keyword:Direktinvestition / Internationale Finanzierung / Kapitalstruktur / Auslandsniederlassung / Steuerbelastung / Deutschland
Page Number:28
Source:CESifo working papers ; 1355
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht