Why Don't they Minimize their Tax? An Experimental Approach to Cross Border Hybrid Finance

WU International Taxation Research Paper Series No. 2012-05

SFB International Tax Coordination Discussion Paper No. 39

35 Pages Posted: 12 Feb 2013 Last revised: 17 Feb 2013

See all articles by Eva Eberhartinger

Eva Eberhartinger

Vienna University of Economics and Business

Gerlinde Fellner-Röhling

University of Ulm - Department of Mathematics and Economics

Date Written: 2012

Abstract

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

Eberhartinger, Eva and Fellner-Röhling, Gerlinde, Why Don't they Minimize their Tax? An Experimental Approach to Cross Border Hybrid Finance (2012). WU International Taxation Research Paper Series No. 2012-05, SFB International Tax Coordination Discussion Paper No. 39, Available at SSRN: https://ssrn.com/abstract=2177994 or http://dx.doi.org/10.2139/ssrn.2177994

Eva Eberhartinger

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna 1020
Austria

HOME PAGE: http://www.wu.ac.at

Gerlinde Fellner-Röhling (Contact Author)

University of Ulm - Department of Mathematics and Economics ( email )

Helmholzstrasse
Ulm, D-89081
Germany

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