Tax Attractiveness and the Location of German-Controlled Subsidiaries

arqus, Quantitative Research in Taxation, Discussion Paper No. 142

54 Pages Posted: 17 Dec 2013

See all articles by Sara Keller

Sara Keller

WHU - Otto Beisheim School of Management

Deborah Schanz

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2, 2013

Abstract

This paper analyzes whether taxation has an influence on the location decisions of multinational enterprises. As a tax measure, we employ the Tax Attractiveness Index (see Keller and Schanz 2013). This index covers 18 different tax factors, such as the taxation of dividends and capital gains, withholding taxes, the existence of a group taxation regime, and thin capitalization rules. Our count data regression analysis is based on a novel hand-collected data set consisting of the subsidiaries of German DAX30 companies. Controlling for non-tax effects, we find that a country’s tax environment as measured by the Tax Attractiveness Index has a significantly positive effect on the number of German controlled subsidiaries located there. Hence, our study implies that location decisions depend on a bundle of tax factors as captured by the index. In a second step, we show that the location decisions of German DAX30 companies cannot be explained by the statutory tax rate alone. In contrast, withholding taxes, double treaty networks, and special holding regimes seem to play a decisive role in location decisions. Previous studies examining only the influence of statutory tax rates may thus have underestimated the effects of taxation on the activities of multinational companies.

Keywords: tax attractiveness, location decision, multinational enterprise, count data model

JEL Classification: H25, H26, F23

Suggested Citation

Keller, Sara and Schanz, Deborah, Tax Attractiveness and the Location of German-Controlled Subsidiaries (April 2, 2013). arqus, Quantitative Research in Taxation, Discussion Paper No. 142, Available at SSRN: https://ssrn.com/abstract=2368713 or http://dx.doi.org/10.2139/ssrn.2368713

Sara Keller

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Deborah Schanz (Contact Author)

Ludwig Maximilian University of Munich - Faculty of Business Administration (Munich School of Management) ( email )

Ludwigstr. 28 RG IV
Munich, Bavaria 80539
Germany
+49 (0) 89 / 2180 - 3681 (Phone)
+49 (0) 89 / 2180 - 3874 (Fax)

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