Cross‐Jurisdictional Income Shifting by U.S. Multinationals: Evidence from International Bond Offerings

Newberry, Kaye J.; Dhaliwal, Dan S.

doi:10.1111/1475-679x.00032

Cited by 144 publications

(70 citation statements)

References 21 publications

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“…(1993), Harris (1993), Jacob (1996, Collins et al (1998), Klassen and Laplante (2008) among others. Kemsley (1998), Newberry and Dhaliwal (2001), Grubert and Slemrod (1998) and Grubert (2003) provide evidence of the income shifting incentive influencing the location decision for certain corporate activities. These activities included the location of production, interest deductions and capital investment.…”

Section: Motivationmentioning

confidence: 99%

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Multi-Jurisdictional Tax Incentives and the Location of Innovative Activities

MacDonald¹

2011

SSRN Journal

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Section: Motivationmentioning

confidence: 99%

“…The calculation of ALLOC follows a similar calculation used to measure the marginal tax benefit of domestic interest deductions by Collins and Shackelford (1992) and Newberry and Dhaliwal (2001).…”

Section: Tax Variablesmentioning

confidence: 99%

Multi-Jurisdictional Tax Incentives and the Location of Innovative Activities

MacDonald¹

2011

SSRN Journal

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“…Using data on affiliates of US multinationals, as we do, Hines and Rice (1994) show that US firms typically can arrange their finances to benefit from the deductibility of interest expense in high-tax countries by deferring US taxes until profits are repatriated from foreign affiliates. Froot and Hines (1995) examine the effects of limits to the deductibility of interest expenses due to the US allocation rules on the financing of US multinational firms; Desai and Hines (1999) analyze changes in joint venture capital structure in response to foreign tax credit limitations; Altshuler and Grubert (2003) study inter-affiliate transactions motivated by tax rules among affiliates of US multinationals; and Newberry and Dhaliwal (2001) examine the role of local tax-loss carry-forwards on the international location of debt issuance by US multinationals.…”

Section: Introductionmentioning

confidence: 99%

Thin Capitalization Rules and Multinational Firm Capital Structure

et al. 2014

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential data on the internal and total leverage of foreign affiliates of US multinationals, we find that thin capitalization rules affect multinational firm capital structure in a significant way. Specifically, restrictions on an affiliate's debt-to-assets ratio reduce this ratio on average by 1.9%, while restrictions on an affiliate's borrowing from the parent-to-equity ratio reduce this ratio by 6.3%. Also, restrictions on borrowing from the parent reduce the affiliate's debt to assets ratio by 0.8%, which shows that rules targeting internal leverage have an indirect effect on the overall indebtedness of affiliate firms. The impact of capitalization rules on affiliate leverage is higher if their application is automatic rather than discretionary. Furthermore, we show that thin capitalization regimes have aggregate firm effects: they reduce the firm's aggregate interest expense bill but lower firm valuation. Overall, our results show than thin capitalization rules, which thus far have been understudied, have a substantial effect on the capital structure within multinational firms, with implications for the firm's market valuation. Terms of use: Documents inJEL-Code: G320, H250.

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“…Specifically, Hines and Hubbard (1990), Collins and Shackelford (1992), Froot and Hines (1992), and Grubert (1998) provide evidence that U.S. multinational financial structure and the pattern of intrafirm interest and other income flows are consistent with tax minimization objectives. Newberry and Dhaliwal (2001) find that the debt issuance location of U.S. multinationals is affected by these firms' jurisdiction-specific tax-loss carry-forwards and binding foreign tax credit limitations on the value of debt tax shields. Desai, Foley, and Hines (2004) find that both the internal and external financing of outward U.S. Foreign Direct Investment (FDI) is sensitive to foreign tax rates.…”

Section: Introductionmentioning

confidence: 93%

Capital Structure and International Debt Shifting

Laeven

Huizinga²,

Nicodème³

2007

IMF Working Papers

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This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.This paper presents a model of a multinational firm's optimal debt policy that incorporates international taxation factors. The model yields the prediction that a multinational firm's indebtedness in a country depends on a weighted average of national tax rates and differences between national and foreign tax rates. These differences matter because multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested using a novel firm-level dataset for European multinationals and their subsidiaries, combined with newly collected data on the international tax treatment of dividend and interest streams. Our empirical results show that corporate debt policy indeed not only reflects domestic corporate tax rates but also differences in international tax systems. These findings contribute to our understanding of how corporate debt policy is set in an international context. JEL Classification Numbers: F23, G32, H25

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Cross‐Jurisdictional Income Shifting by U.S. Multinationals: Evidence from International Bond Offerings

Cited by 144 publications

References 21 publications

Multi-Jurisdictional Tax Incentives and the Location of Innovative Activities

Multi-Jurisdictional Tax Incentives and the Location of Innovative Activities

Thin Capitalization Rules and Multinational Firm Capital Structure

Capital Structure and International Debt Shifting

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