The Effect of Cross-Border Group Taxation on Ownership Chains

Abstract

I examine the influence of cross-border group taxation on ownership chains for European multinational firms. I show that the tax advantages of cross-border group taxation regimes can only be exploited if a multinational firm has at least one intermediate subsidiary in the country allowing for cross-border group taxation. I use the introduction of the Austrian cross-border group taxation regime as a natural experiment to test my hypothesis. I find that the probability that a foreign parent company holds an Austrian intermediate subsidiary is significantly higher after the introduction of the group taxation regime. However, I am only able to observe this effect for parent companies already invested in Austria prior to the introduction of the cross-border group taxation regime. I am unable to provide evidence that this also holds for parent companies who are not invested in Austria prior to the introduction of the cross-border group taxation regime. My results contribute to a nascent literature that examines the influence of taxes on ownership chains, and a larger literature on (intermediate) subsidiary location decisions for multinationals. My findings provide empirical evidence that could be useful to governments in those countries attempting to reform their group taxation regimes, or who are implementing cross-border group taxation regimes for the first time.

Losses never sleep – The effect of tax loss offset on stock market returns during economic crises

“…When explaining DaysRecovery , we expect a significant and negative coefficient estimate for and . Prior literature has identified group tax systems as an instrument to utilize tax benefits resulting from loss-making subsidiaries effectively (Oestreicher and Koch 2010 ; Rünger 2019 ). We, therefore, include an indicator variable ( GroupTaxSystem ) taking the value of 1 if a group tax system is in place and zero otherwise.…”

Losses Never Sleep - The Effect of Tax Loss Offset on Stock Market Returns during Economic Crises

“…When explaining DaysRecovery, we expect a significant and negative coefficient estimate for 1 and 2 . Prior literature has identified group tax systems as an instrument to utilize tax benefits resulting from loss-making subsidiaries effectively (Oestreicher and Koch 2010;Rünger 2019). We, therefore, include an indicator variable (GroupTaxSystem) taking the value of 1 if a group tax system is in place and zero otherwise.…”

Essays on the Real Effects of Tax Reforms

“…Third, the affiliation of the firm and treated corporate shareholder to the same group 17 can be another characteristic affecting the dividend tax responsiveness. On the one hand, a group can employ tax-planning strategies to avoid the dividend tax burden at the corporate shareholder level, e.g., via debt-financing, transfer pricing, licensing and the appropriation of profits and losses (e.g., Dischinger and Riedel, 2011;Buettner and Wamser, 2013;Rünger, 2019;Amiram et al, 2019). 18 Under this scenario, I do not expect a change in the corporate shareholder's minority stake.…”