Taxation and the Financial Structure of German Outbound FDI

By Jack Mintz, Alfons J. Weichenrieder. Social Science Research Network, 2005

132 citations recorded by the source corpus.

The paper analyzes the financial structure of outbound FDI during the period 1996-2002 by drawing on up to 54,022 firm-year observations of 13,758 German-owned subsidiaries. We find that the tax rate in the host country has a sizeable and significantly positive effect on leverage for wholly-owned foreign unlike partially-owned foreign companies. Most of the effect comes from increased intra-company borrowing, while third-party debt is not significantly affected by tax differences. While wholly-owned subsidiaries react more sensitively to tax rate differentials, they are less sensitive to macroeconomic influences like interest rates.

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Citations in the corpus

Corporate tax planning and thin-capitalization rules: evidence from a quasi-experiment (2010, background): “( 2006a ), and by Mintz and Weichenrieder ( 2005 ) for German multinationals.”
Profit shifting in the EU: evidence from Germany (2009, methodology): “These results are fully compatible with the finding of Mintz and Weichenrieder (2005) that the foreign tax rates significantly influences the intra-company loans granted by a German parent, but much less so if the foreign subsidiary is co-owned by other investors.”
Who is Afraid of Political Risk? Multinational Firms and Their Choice of Capital Structure (2010, background): “See, for example, Ross (1977). Berle and Means (1932), Jensen and Meckling (1976).”
Thin Capitalization Rules and Multinational Firm Capital Structure (2014, result): “Similar results are also obtained by Mintz and Weichenrieder (2005) using data on the foreign subsidiaries of German multinational firms.”
FDI determination and corporate tax competition in a volatile world (2010, unknown): “Uncertainty in interest rates applicable to “between affiliates” debt shifting transactions could then affect the feasibility and profitability of such 17In particular, external credit market conditions proved to be important determinants of the financial structure of multinationals’affiliates in de”
The Impact of Thin-Capitalization Rules on Multinationals' Financing and Investment Decisions (2006, unknown): “Mintz and Weichenrieder (2005) report results for foreign affiliates of German corporations of between 0.3 and 0.57 depending on specification.”