Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2015/31: Immobilizing Corporate Income Shifting: Should It Be Safe to Strip in the Harbor?

Thomas A. Gresik (), Dirk Schindler () and Guttorm Schjelderup ()
Additional contact information
Thomas A. Gresik: Dept. of Economics, University of Notre Dame, Postal: University of Notre Dame, Department of Economics, 434 Flanner Hall, Notre Dame, IN 46556, France
Dirk Schindler: Dept. of Accounting, Auditing and Law, Norwegian School of Economics, Postal: NHH , Department of Accounting, Auditing and Law, Helleveien 30, N-5045 Bergen, Norway
Guttorm Schjelderup: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway

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

JEL-codes: H26; H73; K34

36 pages, November 18, 2015

Full text files

2364463  

Download statistics

Questions (including download problems) about the papers in this series should be directed to Stein Fossen ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-01-23 23:36:10.