International Tax and Public Finance

, Volume 25, Issue 3, pp 553–580 | Cite as

Anti profit-shifting rules and foreign direct investment

  • Thiess BuettnerEmail author
  • Michael Overesch
  • Georg Wamser


This paper explores the effects of unilateral tax provisions aimed at restricting multinationals’ tax planning on foreign direct investment (FDI). Using a unique dataset which allows us to observe the worldwide activities of a large panel of multinational firms, we test how limitations of interest tax deductibility, so-called thin-capitalization rules, and regulations of transfer pricing by the host country affect investment and employment of foreign subsidiaries. The results indicate that introducing a typical thin-capitalization rule or making it more tight exerts significant adverse effects on FDI and employment in high-tax countries. Moreover, in countries that impose thin-capitalization rules, the tax-rate sensitivity of FDI is increased. Regulations of transfer pricing, however, are not found to exert significant effects on FDI or employment.


FDI Corporate taxation Profit shifting Thin-capitalization rules Transfer-pricing regulations Affiliate-level data Foreign subsidiary Employment Base erosion and profit shifting (BEPS) OECD 

JEL Classification

H25 F23 



We thank seminar participants at the Oxford University Centre for Business Taxation, at CESifo, Munich, and at the Free University of Berlin, for helpful comments. Data access by the Deutsche Bundesbank and financial support by the German Science Foundation (DFG) is gratefully acknowledged.


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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.University of Erlangen-Nuremberg and CESifoNurembergGermany
  2. 2.University of CologneCologneGermany
  3. 3.University of Tuebingen and CESifoTuebingenGermany

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