Published in:NHH Dept. of Business and Management Science Discussion Paper ; No. 2015/19
Extent:
1 Online-Ressource (36 p)
Language:
English
DOI:
10.2139/ssrn.2598437
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments April 24, 2015 erstellt
Description:
Multinational corporations can shift income into low-tax countries through transfer pricing and debt financing. While most developed countries use thin capitalization rules to limit the extent to which a subsidiary can be financed with internal debt, a number of developing countries do not. In this paper, we analyze the effect on FDI and host country welfare of thin capitalization rules when multinationals can also shift income via transfer prices. We show that while permissive thin capitalization limits may be needed in developing countries to attract FDI, the amount of debt financing allowed by the permissive limits facilitates more aggressive transfer pricing and results in lower host country welfare