Influence of Anti-Tax Avoidance Rules on Profit Shifting and Real FDI - Examining CFC Rules

Abstract

This paper examines the different CFC rule settings in the OECD and additional countries for the years 2004 to 2014, compares them and shows the influence on real foreign direct investments (FDI) and profit shifting of multinationals. Using a unique CFC rule panel data set for 56 parent countries and micro level firm data, I show that CFC rules lead in most of the cases to more real FDI and less passive income in the foreign subsidiaries. Due to these facts CFC rules seem to constitute a functional anti-tax avoidance law to counteract profit shifting behaviour of multinationals. The paper points out that CFC rules in the considered countries are very different concerning their specifications and shows results for the effect of some important characteristics.

Keywords: CFC Rules, International Taxation, Corporate Taxation, OECD, BEPS

JEL Classification: F21, F23, H25, H26, H73