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One-Way Treaty with the World: The U.S. Withholding Tax and the Netherlands Antilles

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  • Leslie Papke

Abstract

This paper chronicles the experiences of the U.S. withholding tax on interest income. In 1984, the U.S. repealed its 30 percent withholding tax on interest income paid to foreign persons or corporations. While the tax raised little revenue, it had imposed substantial implicit costs on U.S. corporate borrowers. Since, prior to repeal, domestically issued bonds were subject either to withholding or strict information requirements, many U.S. multinationals raised funds through foreign finance subsidiaries, primarily in the Netherlands Antilles, to avoid the tax. Although the withholding tax rate was effectively reduced to zero in the U.S., this paper demonstrates that interest flows were highly sensitive to their after-tax cost. Copyright Kluwer Academic Publishers 2000

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  • Leslie Papke, 2000. "One-Way Treaty with the World: The U.S. Withholding Tax and the Netherlands Antilles," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(3), pages 295-313, May.
    • Handle: RePEc:kap:itaxpf:v:7:y:2000:i:3:p:295-313
    DOI: 10.1023/A:1008705713629
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    References listed on IDEAS

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    1. Leslie E. Papke, 1989. "International Differences in Capital Taxation and Corporate Borrowing Behavior: Evidence from the U.S. Withholding Tax," NBER Working Papers 3129, National Bureau of Economic Research, Inc.
    2. Harry Huizinga, 1994. "International interest withholding taxation: Prospects for a common European policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(3), pages 277-291, October.
    3. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 149-182.
    4. Harry Grubert & Joel Slemrod, 1998. "The Effect Of Taxes On Investment And Income Shifting To Puerto Rico," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 365-373, August.
    5. Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(1), pages 85-106, February.
    6. Feldstein, Martin & Hines, James R. & Hubbard, R. Glenn (ed.), 1995. "The Effects of Taxation on Multinational Corporations," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226240954, July.
    7. Jack Mintz & Henry Tulkens, 1984. "Commodity Tax Competition Between Member States of a Federation," Working Paper 558, Economics Department, Queen's University.
    8. Martin Feldstein & James R. Hines Jr. & R. Glenn Hubbard, 1995. "The Effects of Taxation on Multinational Corporations," NBER Books, National Bureau of Economic Research, Inc, number feld95-2.
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    Cited by:

    1. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995, Elsevier.
    2. Robert McCauley, 2005. "Distinguishing global dollar reserves from official holdings in the United States," BIS Quarterly Review, Bank for International Settlements, September.
    3. Rixen, Thomas, 2009. "Paradiese in der Krise: Transparenz und neue Regeln für Steuer- und Regulierungsoasen," Schriften zu Wirtschaft und Soziales, Heinrich-Böll-Stiftung e.V., Berlin, volume 4, number 4, August.
    4. Bruce A. Blonigen & Lindsay Oldenski & Nicholas Sly, 2011. "Separating the Opposing Effects of Bilateral Tax Treaties," NBER Working Papers 17480, National Bureau of Economic Research, Inc.
    5. Leibrecht, Markus & Rixen, Thomas, 2020. "Double Tax Avoidance and Tax Competition for Mobile Capital," SocArXiv dgw5k, Center for Open Science.

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