Corporate Tax Planning and Thin-Capitalization Rules: Evidence from a Quasi-Experiment

Michael Overesch (1) , Georg Wamser (2)

1 Centre for European Economic Research (Mannheim, Germany) - Zentrum für Europäische Wirtschaftsforschung (ZEW)
2 Ifo Institute for Economic Research

This paper investigates tax-planning behaviour by means of inter-company finance and the effectiveness of government countermeasures via thin-capitalization rules. A simple theoretical model which considers the financing decision of a multinational company is used to obtain empirical implications. The empirical analysis, based on German inbound investment data from 1996 to 2004, confirms a significant impact of tax-rate differentials on the use of inter-company debt. The effectiveness of the German thin-capitalization rule is tested by using legal amendments as natural experiments. The results suggest that thin-capitalization rules induce significantly lower internal borrowing. Hence, tax planning via internal finance is effectively limited by thin-capitalization rules.

Mots clés: Social Sciences & Humanities

Michael Overesch, Georg Wamser. Corporate Tax Planning and Thin-Capitalization Rules: Evidence from a Quasi-Experiment. Applied Economics, 2010, 42 (05), pp.563-573. ⟨10.1080/00036840701704477⟩. ⟨hal-00582201⟩