Why Don't they Minimize their Tax? An Experimental Approach to Cross Border Hybrid Finance
SFB International Tax Coordination Discussion Paper No. 39
35 Pages Posted: 12 Feb 2013 Last revised: 17 Feb 2013
Date Written: 2012
International tax law allows, under certain circumstances, to considerably reduce the group average tax rate. In some cases, even the tax-free repatriation of yields on intragroup finance is possible, in particular when using hybrid finance. These cases are normally connected to complex questions of foreign, domestic, and bilateral tax law as well as to uncertainty on whether the intended tax consequences will be upheld by the fiscs in future years. We experimentally investigate the two key variables, legal uncertainty and tax complexity while controlling for decision makers’ risk attitude. Results show that overall tax complexity has a negative effect on the probability to choose a hybrid finance instrument, while legal uncertainty has not. The impact of the two factors is moderated by decision makers’ risk attitudes.
Keywords: hybrid finance, tax, experiment, uncertainty, complexity
JEL Classification: C91, D03, D81, H25
Suggested Citation: Suggested Citation