Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Thomas A. Gresik
Immobilizing Corporate Income Shifting: Should It Be Safe to Strip in the Harbor?
(), Dirk Schindler
() and Guttorm Schjelderup
Abstract: Many subsidiaries can deduct interest payments on internal
debt from their taxable income. By issuing internal debt from a tax haven,
multinationals can shift income out of host countries through the interest
rates they charge and the amount of internal debt they issue. We show that,
from a welfare perspective, thin-capitalization rules that restrict the
amount of debt for which interest is tax deductible (safe harbor rules) are
inferior to rules that limit the ratio of debt interest to pre-tax earnings
(earnings stripping rules), even if a safe harbor rule is used in
conjunction with an earnings stripping rule.
Keywords: Multinational; Income-shifting; safe harbor; earnings stripping; (follow links to similar papers)
JEL-Codes: H26; H73; K34; (follow links to similar papers)
36 pages, November 18, 2015
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