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The Tax Treatment of Interest Expenditures of Multinational Enterprises

Author

Listed:
  • Joulia Ossokina

    (Erasmus University Rotterdam)

  • Herman Vollebergh

    (Erasmus University Rotterdam)

Abstract

This paper analyses the national tax treatment of interestexpenditures of multinational enterprises in a non-cooperative world. It is shown that the international tax systemgenerally leads to distortions in the capitaldecisions of multinational firms. In contrast to the existingliterature on the tax treatment of the expendituresof multinationals, it is found that the form and size of distortionscan differ per country depending on the stakea country has in the multinational. Furthermore, internationalisationof the firm's operations and ownership isdemonstrated to lead to less generous interest deduction rules ofindividual countries and in the limit mayresult in no deduction allowance at all.

Suggested Citation

  • Joulia Ossokina & Herman Vollebergh, 2000. "The Tax Treatment of Interest Expenditures of Multinational Enterprises," Tinbergen Institute Discussion Papers 00-047/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20000047
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    References listed on IDEAS

    as
    1. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-940, September.
    2. James R. MARKUSEN, 2021. "Multinationals, Multi-Plant Economies, And The Gains From Trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 1, pages 3-24, World Scientific Publishing Co. Pte. Ltd..
    3. Rosanne Altshuler & Jack Mintz, 1995. "U.S. interest-allocation rules: Effects and policy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(1), pages 7-35, February.
    4. Kenneth A. Froot & James R. Hines, Jr., 1995. "Interest Allocation Rules, Financing Patterns, and the Operations of U.S. Multinationals," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 277-312, National Bureau of Economic Research, Inc.
    5. Huizinga, Harry, 1992. "The tax treatment of R&D expenditures of multinational enterprises," Journal of Public Economics, Elsevier, vol. 47(3), pages 343-359, April.
    6. Huizinga, Harry, 1991. "National tax policies towards product-innovating multinational enterprises," Journal of Public Economics, Elsevier, vol. 44(1), pages 1-14, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International Investment; Multinational Firms; Optimal Taxation; Interest Expenditures; R&D Expenditures;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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