Thin Capitalization Rules and Multinational Firm Capital Structure PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Thin Capitalization Rules and Multinational Firm Capital Structure PDF full book. Access full book title Thin Capitalization Rules and Multinational Firm Capital Structure by Jennifer Blouin. Download full books in PDF and EPUB format.
Author: Jennifer Blouin
Publisher: International Monetary Fund
ISBN: 1484384644
Category : Business & Economics
Languages : en
Pages : 37
Get Book Here
Book Description
This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential data on the internal and total leverage of foreign affiliates of US multinationals, we find that thin capitalization rules significantly affect multinational firm capital structure. Specifically, restrictions on an affiliate’s debt-to-assets ratio reduce this ratio on average by 1.9%, while restrictions on an affiliate’s borrowing from the parent-to-equity ratio reduce this ratio by 6.3%. Also, restrictions on borrowing from the parent reduce the affiliate’s debt-to-assets ratio by 0.8%, which shows that rules targeting internal leverage have an indirect effect on the overall indebtedness of affiliate firms. The impact of capitalization rules on affiliate leverage is higher if their application is automatic rather than discretionary. Furthermore, thin capitalization regimes have aggregate firm effects: they reduce the firm’s aggregate interest expense but lower firm valuation. Overall, our results show than thin capitalization rules, which thus far have been understudied, have a substantial effect on the capital structure within multinational firms, with implications for the firm’s market valuation.
Author: Jennifer Blouin
Publisher: International Monetary Fund
ISBN: 1484384644
Category : Business & Economics
Languages : en
Pages : 37
Get Book Here
Book Description
This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential data on the internal and total leverage of foreign affiliates of US multinationals, we find that thin capitalization rules significantly affect multinational firm capital structure. Specifically, restrictions on an affiliate’s debt-to-assets ratio reduce this ratio on average by 1.9%, while restrictions on an affiliate’s borrowing from the parent-to-equity ratio reduce this ratio by 6.3%. Also, restrictions on borrowing from the parent reduce the affiliate’s debt-to-assets ratio by 0.8%, which shows that rules targeting internal leverage have an indirect effect on the overall indebtedness of affiliate firms. The impact of capitalization rules on affiliate leverage is higher if their application is automatic rather than discretionary. Furthermore, thin capitalization regimes have aggregate firm effects: they reduce the firm’s aggregate interest expense but lower firm valuation. Overall, our results show than thin capitalization rules, which thus far have been understudied, have a substantial effect on the capital structure within multinational firms, with implications for the firm’s market valuation.
Author: Jennifer Blouin
Publisher:
ISBN: 9789279354298
Category : Capital
Languages : en
Pages : 47
Get Book Here
Book Description
This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential data on the internal and total leverage of foreign affiliates of US multinationals, we find that thin capitalization rules affect multinational firm capital structure in a significant way. Specifically, restrictions on an affiliate's debt-to-assets ratio reduce this ratio on average by 1.9%, while restrictions on an affiliate's borrowing from the parent-to-equity ratio reduce this ratio by 6.3%. Also, restrictions on borrowing from the parent reduce the affiliate's debt to assets ratio by 0.8%, which shows that rules targeting internal leverage have an indirect effect on the overall indebtedness of affiliate firms. The impact of capitalization rules on affiliate leverage is higher if their application is automatic rather than discretionary. Furthermore, we show that thin capitalization regimes have aggregate firm effects: they reduce the firm's aggregate interest expense bill but lower firm valuation. Overall, our results show than thin capitalization rules, which thus far have been understudied, have a substantial effect on the capital structure within multinational firms, with implications for the firm's market valuation.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Author: Ruud A. de Mooij
Publisher: International Monetary Fund
ISBN: 1513568558
Category : Business & Economics
Languages : en
Pages : 17
Get Book Here
Book Description
Thin capitalization rules (TCRs) aim to mitigate profit shifting by multinational corporations (MNCs) but, by raising the cost of capital for affected affiliates, can also negatively affect real investment. Exploiting unique panel data on multinational companies in 34 countries during 2006-2014, we estimate that the size of this adverse investment effect can be large, and dependent on the statutory corporate tax rate and the tightness of the safe-haven ratio. Negative investment effects are more pronounced for highly-levered firms for which TCRs are more likely to be binding.
Author: Mr. Luc Laeven
Publisher: International Monetary Fund
ISBN: 1451910568
Category : Business & Economics
Languages : en
Pages : 40
Get Book Here
Book Description
This paper presents a model of a multinational firm''s optimal debt policy that incorporates international taxation factors. The model yields the prediction that a multinational firm''s indebtedness in a country depends on a weighted average of national tax rates and differences between national and foreign tax rates. These differences matter because multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested using a novel firm-level dataset for European multinationals and their subsidiaries, combined with newly collected data on the international tax treatment of dividend and interest streams. Our empirical results show that corporate debt policy indeed not only reflects domestic corporate tax rates but also differences in international tax systems. These findings contribute to our understanding of how corporate debt policy is set in an international context.
Author: Ruud A. de Mooij
Publisher: International Monetary Fund
ISBN: 1475578296
Category : Business & Economics
Languages : en
Pages : 20
Get Book Here
Book Description
Tax provisions favoring corporate debt over equity finance (“debt bias”) are widely recognized as a risk to financial stability. This paper explores whether and how thin-capitalization rules, which restrict interest deductibility beyond a certain amount, affect corporate debt ratios and mitigate financial stability risk. We find that rules targeted at related party borrowing (the majority of today’s rules) have no significant impact on debt bias—which relates to third-party borrowing. Also, these rules have no effect on broader indicators of firm financial distress. Rules applying to all debt, in contrast, turn out to be effective: the presence of such a rule reduces the debt-asset ratio in an average company by 5 percentage points; and they reduce the probability for a firm to be in financial distress by 5 percent. Debt ratios are found to be more responsive to thin capitalization rules in industries characterized by a high share of tangible assets.
Author: Sandra Martinho Fernandes
Publisher:
ISBN: 9789087225476
Category : Double taxation
Languages : en
Pages : 437
Get Book Here
Book Description
Author: International Monetary Fund. Fiscal Affairs Dept.
Publisher: International Monetary Fund
ISBN: 1498345204
Category : Business & Economics
Languages : en
Pages : 78
Get Book Here
Book Description
Risks to macroeconomic stability posed by excessive private leverage are significantly amplified by tax distortions. ‘Debt bias’ (tax provisions favoring finance by debt rather than equity) has increased leverage in both the household and corporate sectors, and is now widely recognized as a significant macroeconomic concern. This paper presents new evidence of the extent of debt bias, including estimates for banks and non-bank financial institutions both before and after the global financial crisis. It presents policy options to alleviate debt bias, and assesses their effectiveness. The paper finds that thin capitalization rules restricting interest deductibility have only partially been able to address debt bias, but that an allowance for corporate equity has generally proved effective. The paper concludes that debt bias should feature prominently in countries’ tax reform plans in the coming years.
Author: Sebastian Beer
Publisher: International Monetary Fund
ISBN: 148436399X
Category : Business & Economics
Languages : en
Pages : 45
Get Book Here
Book Description
This paper reviews the rapidly growing empirical literature on international tax avoidance by multinational corporations. It surveys evidence on main channels of corporate tax avoidance including transfer mispricing, international debt shifting, treaty shopping, tax deferral and corporate inversions. Moreover, it performs a meta analysis of the extensive literature that estimates the overall size of profit shifting. We find that the literature suggests that, on average, a 1 percentage-point lower corporate tax rate will expand before-tax income by 1 percent—an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time. The literature on tax avoidance still has several unresolved puzzles and blind spots that require further research.
Author: Jack M. Mintz
Publisher: MIT Press
ISBN: 0262014491
Category : Business & Economics
Languages : en
Pages : 203
Get Book Here
Book Description
Drawing on a unique data set (MiDi) on German multinationals provided by the Deutsche Bundesbank in Frankfurt, Mintz and Weichenrieder confirm the prevalence of indirect financing structures for both outbound and inbound German investment. They find evidence of "treaty shopping!' to avoid withholding taxes (using a third country with more favorable tax rates as a conduit through which to route investments) and of "debt shifting." --
