Withholding Taxes, Compliance Cost and Foreign Portfolio Investment
54 Pages Posted: 23 Apr 2020 Last revised: 25 Jun 2020
Date Written: March 30, 2020
We examine the role of withholding taxes on foreign portfolio investment (FPI) and compliance frictions in obtaining foreign tax credits using data on bilateral FPI around the globe and on U.S. institutional investor’s foreign holdings. Exploiting variation in withholding tax rates for 36 investor countries and 110 issuer countries over 2008-2015, we find that, conversely to the intended design of the international tax system, withholding taxes adversely affect FPI because of high compliance costs to international investors in claiming foreign tax credits.
Keywords: Foreign portfolio investment, withholding taxes, shareholder taxation, home bias
JEL Classification: D25; G11; G25; H20; H24
Suggested Citation: Suggested Citation