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International taxation and the organizational form of foreign direct investment

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  • Harald J. Amberger

    (Vienna University of Economics and Business)

  • Saskia Kohlhase

    (Erasmus University Rotterdam)

Abstract

We investigate the relation between international taxation and the organizational form of foreign direct investment (FDI). Using micro-level data on inbound FDI relations in Germany, we find that a higher tax burden on income earned in a corporate subsidiary increases the probability that a multinational corporation (MNC) conducts foreign investment through a non-corporate flow-through. This effect is economically meaningful and varies with the relative importance of tax-motivated income shifting, a subsidiary’s non-tax benefits of limited liability and legal independence, and an MNC’s local knowledge. Moreover, we examine potential real effects of organizational form choices and document that affiliates established as flow-throughs exhibit a lower loss propensity and are less profitable than affiliates established as subsidiaries. Taken together, our findings inform policy makers about the potential response of MNCs to tax-law changes and suggest that the chosen organizational form can shape the future characteristics of investments abroad.

Suggested Citation

  • Harald J. Amberger & Saskia Kohlhase, 2023. "International taxation and the organizational form of foreign direct investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(8), pages 1529-1561, October.
    • Handle: RePEc:pal:jintbs:v:54:y:2023:i:8:d:10.1057_s41267-023-00614-1
    DOI: 10.1057/s41267-023-00614-1
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    Cited by:

    1. Jingyi Yang & Xiaoyang Guo & Yang Shen, 2024. "Research on Global Tax Governance under the Background of Digital Economy," Review of Economic Assessment, Anser Press, vol. 3(1), pages 86-101, March.

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