One-Way Treaty with the World: The U.S. Withholding Tax and the Netherlands Antilles

Posted: 17 May 2001

See all articles by Leslie E. Papke

Leslie E. Papke

Michigan State University - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

This paper chronicles the experiences of the U.S. withholding tax on interest income. In 1984, the U.S. repealed its 30 percent withholding tax on interest income paid to foreign persons or corporations. While the tax raised little revenue, it had imposed substantial implicit costs on U.S. corporate borrowers. Since, prior to repeal, domestically issued bonds were subject either to withholding or strict information requirements, many U.S. multinationals raised funds through foreign finance subsidiaries, primarily in the Netherlands Antilles, to avoid the tax. Although the withholding tax rate was effectively reduced to zero in the U.S., this paper demonstrates that interest flows were highly sensitive to their after-tax cost.

Suggested Citation

Papke, Leslie E., One-Way Treaty with the World: The U.S. Withholding Tax and the Netherlands Antilles. International Tax and Public Finance, Vol. 7, No. 3, 2000. Available at SSRN: https://ssrn.com/abstract=261972

Leslie E. Papke (Contact Author)

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States
517-355-3773 (Phone)
517-432-1068 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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