The Effect of Taxes on Multinational Debt Location

53 Pages Posted: 28 Jul 2010 Last revised: 13 Feb 2011

Date Written: July 27, 2010


We provide new evidence that differences in international tax rates and tax regimes affect multinational firms’ debt location decisions. Our sample contains 8,287 debt issues from 2,437 firms headquartered in 23 different countries with debt-issuing subsidiaries in 59 countries. We analyze firms’ marginal decisions of where to issue debt to investigate the influence of a comprehensive set of tax-related effects, including differences in personal and corporate tax rates, tax credit and exemption systems, and bi-lateral cross-country withholding taxes on interest and dividend payments. Our results show that differences in personal and corporate tax rates, the presence of dividend imputation or relief tax systems, the tax treatment of repatriated profits, and inter-country withholding taxes on dividends and interest significantly influence the decision of where to locate debt and the proportion of debt located abroad. Our results are robust to firm and issue specific factors and to the effect of legal regimes, debt market development, and exchange rate risk.

Keywords: International Corporate Finance, Capital Structure, International Debt Choice, Corporate Taxes, Withholding Taxes, FDI

JEL Classification: F34, G15, G32

Suggested Citation

Arena, Matteo P. and Roper, Andrew H., The Effect of Taxes on Multinational Debt Location (July 27, 2010). Journal of Corporate Finance, Vol. 16, pp. 637-654, 2010. Available at SSRN:

Matteo P. Arena (Contact Author)

Marquette University ( email )

College of Business Administration
P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Andrew H. Roper

Compass Lexecon ( email )

Mountain View, CA
United States

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