Withholding Taxes, Compliance Cost and Foreign Portfolio Investment

51 Pages Posted: 23 Apr 2020 Last revised: 23 Nov 2020

See all articles by Martin Jacob

Martin Jacob

WHU - Otto Beisheim School of Management

Maximilian Todtenhaupt

Norwegian School of Economics (NHH)

Date Written: March 30, 2020

Abstract

We examine the role of withholding taxes on foreign portfolio in-vestment (FPI) and compliance frictions in obtaining foreign tax cred-its using data on bilateral FPI around the globe and on U.S. institu-tional investor’s foreign holdings. Exploiting variation in withholding tax rates for 36 investor countries and 110 issuer countries from 2008 to 2015, we find that, conversely to the intended design of the interna-tional 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

Jacob, Martin and Todtenhaupt, Maximilian, Withholding Taxes, Compliance Cost and Foreign Portfolio Investment (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3564149 or http://dx.doi.org/10.2139/ssrn.3564149

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Maximilian Todtenhaupt (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://https://sites.google.com/view/todtenhaupt

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