International Taxation and the Organizational Form of Foreign Direct Investment

63 Pages Posted: 9 Mar 2017 Last revised: 30 Oct 2019

See all articles by Harald Amberger

Harald Amberger

Vienna University of Economics and Business; Dartmouth College - Tuck School of Business

Saskia Kohlhase

Erasmus University Rotterdam

Date Written: October 1, 2018

Abstract

We examine the effect of tax burden differences between organizational forms on multinationals choosing an organizational form for a newly established foreign affiliate. Analyzing micro-level data on inbound foreign direct investment relations in Germany, we find that a higher tax burden on foreign income earned in a corporate subsidiary significantly increases the tendency of a multinational to choose a non-corporate flow-through. Income-shifting opportunities, industry-specific risk, country-level differences in regulatory quality, and host-country experience moderate this effect and thus shape the cost-benefit relation of organizational forms in cross-border settings. In addition, we document that multinationals establishing a new affiliate as a flow-through on the basis of a tax benefit invest less in that affiliate and exhibit a more complex group structure. Taken together, our results provide evidence on how tax rules shape group structures of multinationals and suggest that an asymmetric taxation of organizational forms has economic consequences.

Keywords: Organizational Form Choice, Group Structures, International Taxation, Multinationals, Economic Consequences

JEL Classification: M41, H25, H73, K34

Suggested Citation

Amberger, Harald Johannes and Kohlhase, Saskia, International Taxation and the Organizational Form of Foreign Direct Investment (October 1, 2018). WU International Taxation Research Paper Series No. 2017-02. Available at SSRN: https://ssrn.com/abstract=2929347 or http://dx.doi.org/10.2139/ssrn.2929347

Harald Johannes Amberger

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Saskia Kohlhase (Contact Author)

Erasmus University Rotterdam ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

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