Where Does Multinational Investment Go with Territorial Taxation? Evidence from the UK
50 Pages Posted: 2 Feb 2018 Last revised: 13 Feb 2018
Date Written: January 2018
In 2009, the United Kingdom changed from a worldwide to a territorial tax system, abolishing dividend taxes on foreign repatriation from many low-tax countries. This paper assesses the causal effect of territorial taxation on real investments, using a unique dataset for multinational affiliates in 27 European countries and employing the difference-in-difference approach. It finds that the territorial reform has increased the investment rate of UK multinationals by 15.7percentage points in low-tax countries. In the absence of any significant investment reduction elsewhere, the findings represent a likely increase in total outbound investment by UK multinationals.
Keywords: Europe, Foreign direct investment, United Kingdom, corporate tax policy, multinational firms, Business Taxes and Subsidies, General
JEL Classification: H25, F23, G30
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