International Taxation and the Organizational Form of Foreign Direct Investment

Journal of International Business Studies, Forthcoming

WU International Taxation Research Paper Series No. 2017-02

Posted: 7 Feb 2023

See all articles by Harald Amberger

Harald Amberger

Vienna University of Economics and Business

Saskia Kohlhase

Erasmus University Rotterdam

Date Written: January 11, 2023

Abstract

We investigate the relation between international taxation and the organizational form of foreign direct investment (‘FDI’). Using micro-level data on inbound FDI relations in Germany, we find that a higher tax burden on income earned in a corporate subsidiary increases the probability that a multinational corporation (‘MNC’) conducts foreign investment through a non-corporate flow-through. This effect is economically meaningful and varies with the relative importance of tax-motivated income shifting, a subsidiary’s non-tax benefits of limited liability and legal independence, and an MNC’s local knowledge. Moreover, we examine potential real effects of organizational form choices and document that affiliates established as flow-throughs exhibit a lower loss propensity and are less profitable than affiliates established as subsidiaries. Taken together, our findings inform policy makers about the potential response of MNCs to tax-law changes and suggest that the chosen organizational form can shape the future characteristics of investments abroad.

Keywords: International Taxation, Multinational Corporations (MNCs) and Enterprises (MNEs), Real Effects, Multiple Regression Analysis, Organizational Form Choice, Withholding taxes

JEL Classification: M41, H25, H73, K34

Suggested Citation

Amberger, Harald Johannes and Kohlhase, Saskia, International Taxation and the Organizational Form of Foreign Direct Investment (January 11, 2023). Journal of International Business Studies, Forthcoming, 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

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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