Real Responses to Anti-Tax Avoidance: Evidence from the UK Worldwide Debt Cap

69 Pages Posted: 14 May 2021

See all articles by Katarzyna Anna Bilicka

Katarzyna Anna Bilicka

Utah State University; University of Oxford - Oxford University Centre for Business Taxation

Yaxuan Qi

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Jing Xing

Antai College of Economics & Management, Shanghai Jiao Tong University

Multiple version iconThere are 3 versions of this paper

Date Written: April 2021

Abstract

We analyze how multinational firms reallocate real operations and debt across their affiliates in response to anti-tax avoidance policies. The UK introduced a worldwide debt cap in 2010, generating a quasi-natural experiment that limited interest deductibility for a group of multinational firms. We find that multinationals affected by the reform reduced the amount of debt held in the UK and increased debt held abroad. Affected multinationals reallocated a share of their real operations away from the UK. Our findings provide causal evidence for tax-motivated debt and real activity reallocation within multinationals and show how multinationals can circumvent tax avoidance regulations.

JEL Classification: H25, H26

Suggested Citation

Bilicka, Katarzyna Anna and Qi, Yaxuan and Xing, Jing, Real Responses to Anti-Tax Avoidance: Evidence from the UK Worldwide Debt Cap (April 2021). CEPR Discussion Paper No. DP16068, Available at SSRN: https://ssrn.com/abstract=3846158

Katarzyna Anna Bilicka (Contact Author)

Utah State University ( email )

Logan, UT 84322
United States

University of Oxford - Oxford University Centre for Business Taxation ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

Yaxuan Qi

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Jing Xing

Antai College of Economics & Management, Shanghai Jiao Tong University ( email )

1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200030
China
86 21 52301040 (Phone)

HOME PAGE: http://www.acem.sjtu.edu.cn/en/faculty/xingjing.html

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