## 1. Distribution of OECD Taxation System

## Source details

**Canonical URL:** [1. Distribution of OECD Taxation System](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13205.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13205.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13205.pdf.json)

---

### Introduction
- Corporate income tax from all sources constitutes on average a more significant part of domestic revenue in low-income countries than in advanced economies—even after the widespread introduction of the VAT across most low-income countries.
- The corporate income tax raises an average of about 17 percent of total tax revenue in low and lower-middle income countries, compared to an average of 10 percent (pre-crisis) in OECD countries (Keen, Perry, and Toro, 2011).
- The historical international income tax framework may be poorly suited to allow low-income countries to generate tax revenues from profits on foreign direct investment (FDI) because of:
  - bilateral double taxation treaties that can strip taxable income from source (host) countries;
  - transfer pricing methodology that is difficult for low-capacity countries to implement effectively;
  - taxation of indirect gains related to assets located in a source country typically not captured domestically when the direct transfer occurs elsewhere;
  - trend from “worldwide” taxation to “territorial” taxation where only the source country has jurisdiction to tax profits deemed to arise there.

### Worldwide versus Territorial Taxation: Definitions and OECD Distribution
- Territorial taxation (pure version): only the source (“host”) country taxes active business income earned by corporations outside their country of residence; no contemporaneous tax in the home country, nor taxation on dividend repatriation from foreign subsidiaries.
- Worldwide taxation: a country taxes corporations deemed “resident” on their income from all over the world, normally with offset either by deduction or credit for taxes paid to source countries on the same income, and sometimes with deferral of tax until repatriation of income in the form of dividends.
- Distribution of OECD Taxation Systems:
  - Territorial (26): Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Iceland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom
  - Worldwide (8): Chile, Greece, Ireland, Israel, Korea, Mexico, Poland, United States
- All G-7 countries other than the United States have adopted territorial taxation (or a partial version thereof) for active business income.

### Motivations for Shifting to Territoriality and Expected Effects on FDI
- Motivations cited for the UK and Japan switching to dividend exemption (territoriality) in 2009:
  - simplification;
  - encouraging repatriation of large pools of earnings retained offshore;
  - in the UK: conformity with EU laws and corporate tax norms and concern about corporate inversions;
  - competitiveness concerns when bidding for foreign assets against companies headquartered in territorial countries.
- Possible impacts of switching from worldwide to territorial taxation:
  - Changes in overall volume of FDI.
  - Changes in allocation of FDI across host countries.
  - Changes in composition of FDI financing.
  - Changes in distribution of tax revenues.
- Direction and magnitude depend on:
  - level of home country corporate taxes relative to host countries;
  - opportunities for deferral, cross-crediting, and profit-shifting under both regimes.
- Comparative rate logic:
  - If the average statutory host country CIT rate, weighted by FDI stock per country, is below that of the home country, a shift to territoriality should reduce the overall tax burden on corporate investment and increase overall FDI outflows (income and substitution effects).
  - If the weighted average statutory host country rate is above the home country rate, a move to territoriality may induce little or no aggregate change in FDI, though it will likely alter its distribution among host countries.

### UK and Japan Cases, Rates, and Policy Responses
- Under worldwide regimes before 2009:
  - the UK had a combined (central plus subnational) CIT rate of 30 percent.
  - Japan had a combined (central plus subnational) CIT rate of roughly 40 percent.
- 2008 unweighted OECD CIT average: about 26 percent.
- CIT rate adjustments:
  - The UK reduced its CIT rate stepwise from 30 percent in 2007 to 24 percent in 2012.
  - The UK CIT rate reductions made the UK move from above-average to about average relative to its host countries, with the UK rate reduced to 28 percent in 2008 and 26 percent in 2011.
  - Japan reduced its CIT rate to 38 percent in 2012 and plans a cut to 35.6 percent by 2015.
  - The Japanese domestic CIT rate remained well above its 2010 host country averages of 29.6 percent for OECD countries and 25.5 percent for non-OECD countries.
- Policy interaction:
  - Both CIT rate cuts and moves to territoriality are expected to provide a net stimulus to outbound FDI from countries making the cuts (UK, Japan) and increase sensitivity of corporate investment to host-country tax rates, diverting investment from high-tax to low-tax jurisdictions.
  - Repeal of the repatriation tax and elimination of foreign tax credits on exempt foreign income (territoriality) will likely cause final tax rates on foreign dividends to diverge, increasing pressure on host countries to lower CIT and withholding tax rates.

### Tax Regime Mechanisms and Their Implications
- Worldwide regimes with liberal cross-crediting suppress effective tax rate differentials between home and host countries by:
  - Equalizing the final tax rate on corporate investment to the home country rate whenever the host country rate (including dividend withholding tax) is less than or equal to the home rate.
  - Allowing excess credits from high-tax countries to offset taxes on earnings from low-tax countries.
- Under a worldwide system with deferral:
  - Corporations can defer home country taxation indefinitely by keeping earnings offshore and reinvesting them.
  - Deferral can make a worldwide system mimic territoriality in practice so long as earnings are not repatriated.
- Cross-crediting, profit-shifting (transfer pricing, thin capitalization), and deferral narrow effective tax differentials; territoriality widens them and thus augments incentives for cross-border profit shifting.
- Controlled foreign corporation (CFC) rules are important under both regimes:
  - Worldwide systems rely on CFC rules to tax passive earnings currently.
  - Territorial regimes often retain worldwide rules for passive income and tighten anti-abuse regimes (example: Japan tightened its cross-border minimum tax when moving to territoriality).
- Policy tools to limit adverse effects include:
  - Small residual taxes on dividend repatriations (example cited: about 5 percent in some territorial countries).
  - Allocation rules for domestic expenses between domestic and foreign investment.
  - Worldwide debt caps limiting domestic interest deductions (UK enacted a “worldwide debt cap” in 2009).

### Empirical Evidence — UK 2002–2010 Bilateral FDI Analysis
- Objective: Test whether foreign dividend exemption (territoriality) makes UK outbound FDI more sensitive to host-country taxation, using bilateral country-year net FDI flows (by financing type: new equity and retained earnings) regressed on host CIT and interactions with a post-2008 territoriality dummy.
- Methodology:
  - Random effects model used (Breusch-Pagan indicates country-level intercepts differ; Hausman test does not reject random effects); fixed effects models also run for robustness.
  - Controls: GDP, GDP per capita, index of public institutional quality (sum of World Bank Rule of Law and Political Stability indices), tax haven dummy, regional and year dummies.
  - Dividend withholding tax (DWT) compounded with CIT for new equity regressions as CIT + (1- CIT )*DWT; in retained earnings models DWT was included separately.
- Key regression findings (new equity FDI):
  - Interaction between host country CIT rate and the territoriality dummy is negative as predicted.
  - In the full model with year dummies, a one percentage point increase in the host country CIT rate under territoriality results in a $206 million decrease in UK FDI.
  - In the full model including year dummies for the compound CIT+DWT term, a one point increase results in a US$ 168 million decrease in FDI, a 28 percent decrease relative to the mean FDI value of US$ 591 million.
  - Results are robust to fixed effects; interacted-term coefficients have same signs and slightly larger magnitudes.
- Key regression findings (retained earnings FDI):
  - Results are mixed and less robust: the interaction between CIT and territoriality is significantly negative in only one specification and not robust to inclusion of year dummies.
  - Dividend withholding tax (DWT) often has a significantly positive coefficient on retained earnings (consistent with higher DWT encouraging retention rather than repatriation), but this interaction with territoriality is not consistently significant.
- Additional empirical observations:
  - Tax haven dummy is significantly positive in most models: tax havens draw an average of US$1.3-1.4 billion in UK FDI (controlling for other factors).
  - Countries classified as tax havens receive an average CIT of 22.7 percent versus 26.6 percent for non-havens in the dataset.
  - For retained earnings regressions tax havens receive an average of about US$1.7 billion per year in reinvested earnings.

### Broader Quantitative Points and Historical Observations
- US corporate offshore profits exceeded $1.2 trillion in 2012.
- The 2005 US repatriation tax holiday resulted in a roughly $300 billion increase in repatriated earnings.
- US Government Accountability Office (2008) reports that in 2004 the average effective tax rate on US repatriated dividends was 4 percent.
- UK and Japan each accounted for more than 6 percent of world outbound FDI flows and for more than 4 percent of FDI to the non-OECD in 2010.

### Implications for Low-Income Countries (LICs)
- The shift by high-CIT, capital-exporting countries to territoriality can:
  - Make host-country effective tax rates more important for FDI location decisions.
  - Stimulate more investment to low-tax LICs and erode tax bases in high-tax LICs.
  - Increase tax competition among LICs, potentially harming domestic revenue mobilization, especially since LICs are often more dependent on corporate income tax revenues.
- Loss of retained earnings in host LICs from repeal of repatriation taxes is unlikely to be large because offshore retained earnings are often held in safe securities and not retained in the source country except to finance direct investments.
- Expansion of profit-shifting practices toward lower-tax jurisdictions could increase tax bases and revenues in lower-tax LICs while eroding bases in higher-tax LICs unless countervailing measures (expense allocation, tighter thin-cap rules, CFC rules) are enacted.

### Conclusions and Areas for Future Research
- Main conclusion: Evidence supports the hypothesis that a shift from worldwide to territorial taxation by a relatively high-CIT, capital-exporting country increases corporate sensitivity to host-country tax rates and reduces equity-financed investment in high-tax countries.
- Findings are stronger for new equity-financed FDI than for retained earnings-financed FDI.
- Suggested areas for further research:
  1. Construction of a formal model of corporate FDI to generate more precise testable hypotheses.
  2. Extension of empirical analysis to include effects of territoriality adoption on the volume and financial composition of FDI.
  3. Investigation of territoriality adoption under a formulary apportionment system.
  4. Analysis of Japanese as well as UK data.
  5. Use of corporate-level rather than aggregate bilateral FDI data to control for initial corporate tax status (e.g., excess credit vs. excess limit positions).

### Appendix Highlights
- Appendix Table 1 — Host economies classified by development level (WEO Statistical Appendix, October 2012), categories include Developing and Emerging Market and Advanced economies (selected lists reproduced in source).
- Appendix Table 2 — Selected coefficients and statistics for FDI financed with new equity (fixed effect): examples include:
  - CIT coefficients (columns 1–4): 136.85 (t-statistic 1.27), 68.82 (0.65), 61.78 (0.63), 74.30 (0.72).
  - CIT*TER significant negative coefficients in some columns: -78.38 (-2.76), -208.31 (-2.50).
  - In full specifications a one point increase in compound CIT+DWT associated with US$ 168 million decrease in FDI; mean FDI value US$ 591 million.
  - Adjusted r-squared across specifications range: 0.01 to 0.14.
  - Number of observations: 244 (columns 1–4), 245 (columns 5–8).
- Appendix Table 3 — Selected coefficients and statistics for FDI financed with retained earnings (fixed effect): examples include:
  - CIT coefficients (columns 1–8): 153.82 (2.59), 83.33 (1.91), 121.56 (2.55), 81.92 (1.63), 150.83 (2.52), 69.85 (1.50), 112.06 (2.30), 69.47 (1.32).
  - CIT*TER entries are mixed and fragmented in the source; interaction terms show less consistent significance than for new equity regressions.
  - Adjusted r-squared across specifications range: 0.17 to 0.23.
  - Number of observations: 401 (columns 1–4), 392 (columns 5–8).

*Source: _wp13205*

### 1. Distribution of OECD Taxation System

### 1. Distribution of OECD Taxation System

### Introduction
- Corporate income tax from all sources constitutes on average a more significant part of domestic revenue in low-income countries than in advanced economies—even after the widespread introduction of the VAT across most low-income countries.
- The corporate income tax raises an average of about 17 percent of total tax revenue in low and lower-middle income countries, compared to an average of 10 percent (pre-crisis) in OECD countries (Keen, Perry, and Toro, 2011).
- The historical international income tax framework (developed to handle income flows between advanced economies) may be poorly suited to allow low-income countries to generate tax revenues from profits on foreign direct investment (FDI) because of:
  - bilateral double taxation treaties that can strip taxable income from source (host) countries;
  - transfer pricing methodology that is difficult for low-capacity countries to implement effectively;
  - taxation of indirect gains related to assets located in a source country typically not captured domestically when the direct transfer occurs elsewhere;
  - trend from “worldwide” taxation to “territorial” taxation where only the source country has jurisdiction to tax profits deemed to arise there.

### Worldwide versus Territorial Taxation: Definitions and OECD Distribution
- Territorial taxation (pure version): only the source (“host”) country taxes active business income earned by corporations outside their country of residence; no contemporaneous tax in the home country, nor taxation on dividend repatriation from foreign subsidiaries.
- Worldwide taxation: a country taxes corporations deemed “resident” on their income from all over the world, normally with offset either by deduction or credit for taxes paid to source countries on the same income, and sometimes with deferral of tax until repatriation of income in the form of dividends.
- Table 1. Distribution of OECD Taxation Systems
  - Territorial (26): Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Iceland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom
  - Worldwide (8): Chile, Greece, Ireland, Israel, Korea, Mexico, Poland, United States
- All G-7 countries other than the United States have adopted territorial taxation (or a partial version thereof) for active business income.

### Motivations for Shifting to Territoriality and Expected Effects on FDI
- Motivations cited for the UK and Japan switching to dividend exemption (territoriality) in 2009:
  - simplification;
  - encouraging repatriation of large pools of earnings retained offshore;
  - in the UK: conformity with EU laws and corporate tax norms and concern about corporate inversions;
  - competitiveness concerns when bidding for foreign assets against companies headquartered in territorial countries.
- The impact of switching from worldwide to territorial taxation on outbound FDI can include changes in:
  - overall volume of FDI;
  - allocation of FDI across host countries;
  - composition of FDI financing;
  - distribution of tax revenues.
- The direction and magnitude of the effects depend on:
  - level of home country corporate taxes relative to host countries;
  - opportunities for deferral, cross-crediting, and profit-shifting under both regimes.
- If the average statutory host country CIT rate, weighted by FDI stock per country, is below that of the home country, a shift to territoriality should reduce the overall tax burden on corporate investment, and both the income and substitution effects would tend to increase overall FDI outflows.
- If the weighted average statutory host country rate is above the home country rate, a move to territoriality may induce little or no aggregate change in FDI, though it will likely alter its distribution among host countries.

### UK and Japan Cases, Rates, and Policy Responses
- Under worldwide regimes before 2009:
  - the UK had a combined (central plus subnational) CIT rate of 30 percent.
  - Japan had a combined (central plus subnational) CIT rate of roughly 40 percent.
- 2008 unweighted OECD CIT average: about 26 percent.
- Expectations: the UK and Japan shifts to territoriality could be expected to increase their outbound FDI.
- To mitigate increased incentives for outbound investment after moving to territoriality, both countries also cut their CIT rates:
  - The UK reduced its CIT rate stepwise from 30 percent in 2007 to 24 percent in 2012.
  - Japan reduced its CIT rate to 38 percent in 2012 and plans a cut to 35.6 percent by 2015.
- The United States remains among countries taxing worldwide income; recent proposals and reports have considered moving to territoriality, and the U.S. enacted a repatriation tax holiday in 2005.

### Research Agenda and Empirical Approach in the Paper
- The paper:
  - presents a qualitative theoretical consideration of the impact of a change from worldwide to territorial taxation on the volume, distribution and financing of outbound FDI;
  - discusses specific adaptations made by the UK and Japan in their 2009 adoption of territoriality;
  - discusses possible impacts on LIC host countries in particular;
  - presents a preliminary empirical analysis of the impact of territoriality on FDI flows from the UK using bilateral panel data;
  - proposes further channels for research, including the need for analysis using firm-level data.

*Source: _wp13205 - 1. Distribution of OECD Taxation System*

### 23.7 percent for non-OECD countries, so the UK CIT rate fell from above-average to about

### _wp13205 - 23.7 percent for non-OECD countries, so the UK CIT rate fell from above-average to about

### Effects of CIT reductions and moves to territoriality
- The UK CIT rate reductions made the UK move from above-average to about average relative to its host countries, with the UK rate reduced to 28 percent in 2008 and 26 percent in 2011.
- The Japanese domestic CIT rate remained well above its 2010 host country averages of 29.6 percent for OECD countries and 25.5 percent for non-OECD countries.
- Both CIT rate cuts and moves to territoriality are expected to:
  - Provide a net stimulus to outbound FDI from countries making the cuts (UK, Japan).
  - Increase sensitivity of corporate investment to host-country tax rates, diverting investment from high-tax to low-tax jurisdictions.
- Repeal of the repatriation tax and elimination of foreign tax credits on exempt foreign income (territoriality) will likely cause final tax rates on foreign dividends to diverge, increasing pressure on host countries to lower CIT and withholding tax rates.

### Tax regime mechanisms and their implications
- Worldwide regimes with liberal cross-crediting suppress effective tax rate differentials between home and host countries by:
  - Equalizing the final tax rate on corporate investment to the home country rate whenever the host country rate (including dividend withholding tax) is less than or equal to the home rate.
  - Allowing excess credits from high-tax countries to offset taxes on earnings from low-tax countries.
- Under a worldwide system with deferral:
  - Corporations can defer home country taxation indefinitely by keeping earnings offshore and reinvesting them.
  - Deferral can make a worldwide system mimic territoriality in practice so long as earnings are not repatriated.
- Cross-crediting, profit-shifting (transfer pricing, thin capitalization), and deferral narrow effective tax differentials; territoriality widens them and thus augments incentives for cross-border profit shifting.
- Controlled foreign corporation (CFC) rules are important under both regimes:
  - Worldwide systems rely on CFC rules to tax passive earnings currently.
  - Territorial regimes often retain worldwide rules for passive income and tighten anti-abuse regimes (e.g., Japan tightened its cross-border minimum tax when moving to territoriality).
- Policy tools to limit adverse effects include:
  - Small residual taxes on dividend repatriations (example cited: about 5 percent in some territorial countries).
  - Allocation rules for domestic expenses between domestic and foreign investment.
  - Worldwide debt caps limiting domestic interest deductions (UK enacted a “worldwide debt cap” in 2009).

### Empirical evidence — UK 2002–2010 bilateral FDI analysis
- Objective: Test whether foreign dividend exemption (territoriality) makes UK outbound FDI more sensitive to host-country taxation, using bilateral country-year net FDI flows (by financing type: new equity and retained earnings) regressed on host CIT and interactions with a post-2008 territoriality dummy.
- Methodology notes:
  - Random effects model used (Breusch-Pagan indicates country-level intercepts differ; Hausman test does not reject random effects).
  - Fixed effects models also run for robustness.
  - Controls included: GDP, GDP per capita, an index of public institutional quality (sum of World Bank Rule of Law and Political Stability indices), a tax haven dummy, and regional and year dummies.
  - Dividend withholding tax (DWT) was compounded with CIT for new equity regressions as CIT + (1- CIT )*DWT; in retained earnings models DWT was included separately.
- Key regression findings (new equity FDI):
  - The interaction between host country CIT rate and the territoriality dummy is negative as predicted.
  - In the full model with year dummies, a one percentage point increase in the host country CIT rate under territoriality results in a $206 million decrease in UK FDI.
  - In the full model including year dummies for the compound CIT+DWT term, a one point increase results in a US$ 168 million decrease in FDI, a 28 percent decrease relative to the mean FDI value of US$ 591 million.
  - Results are robust to fixed effects; interacted-term coefficients have same signs and slightly larger magnitudes.
- Key regression findings (retained earnings FDI):
  - Results are mixed and less robust: the interaction between CIT and territoriality is significantly negative in only one specification and not robust to inclusion of year dummies.
  - Dividend withholding tax (DWT) often has a significantly positive coefficient on retained earnings (consistent with higher DWT encouraging retention rather than repatriation), but this interaction with territoriality is not consistently significant.
- Additional empirical observations:
  - Tax haven dummy is significantly positive in most models: tax havens draw an average of US$1.3-1.4 billion in UK FDI (controlling for other factors).
  - Countries classified as tax havens receive an average CIT of 22.7 percent versus 26.6 percent for non-havens in the dataset.
  - For retained earnings regressions tax havens receive an average of about US$1.7 billion per year in reinvested earnings.

### Broader quantitative points and historical observations
- US corporate offshore profits exceeded $1.2 trillion in 2012.
- The 2005 US repatriation tax holiday resulted in a roughly $300 billion increase in repatriated earnings.
- US Government Accountability Office (2008) reports that in 2004 the average effective tax rate on US repatriated dividends was 4 percent.
- UK and Japan each accounted for more than 6 percent of world outbound FDI flows and for more than 4 percent of FDI to the non-OECD in 2010.

### Implications for low-income countries (LICs)
- The shift by high-CIT, capital-exporting countries to territoriality can:
  - Make host-country effective tax rates more important for FDI location decisions.
  - Stimulate more investment to low-tax LICs and erode tax bases in high-tax LICs.
  - Increase tax competition among LICs, potentially harming domestic revenue mobilization, especially since LICs are often more dependent on corporate income tax revenues.
- Loss of retained earnings in host LICs from repeal of repatriation taxes is unlikely to be large because offshore retained earnings are often held in safe securities and not retained in the source country except to finance direct investments.
- Expansion of profit-shifting practices toward lower-tax jurisdictions could increase tax bases and revenues in lower-tax LICs while eroding bases in higher-tax LICs unless countervailing measures (expense allocation, tighter thin-cap rules, CFC rules) are enacted.

### Conclusions and areas for future research
- Main conclusion: Evidence supports the hypothesis that a shift from worldwide to territorial taxation by a relatively high-CIT, capital-exporting country increases corporate sensitivity to host-country tax rates and reduces equity-financed investment in high-tax countries.
- Findings are stronger for new equity-financed FDI than for retained earnings-financed FDI.
- Suggested areas for further research:
  1. Construction of a formal model of corporate FDI to generate more precise testable hypotheses.
  2. Extension of empirical analysis to include effects of territoriality adoption on the volume and financial composition of FDI.
  3. Investigation of territoriality adoption under a formulary apportionment system.
  4. Analysis of Japanese as well as UK data.
  5. Use of corporate-level rather than aggregate bilateral FDI data to control for initial corporate tax status (e.g., excess credit vs. excess limit positions).

*Source: IMF working paper content provided in the supplied PDF excerpt.*

### Appendix Table 1. List of Host Economies by Development Level

### Appendix Table 1. List of Host Economies by Development Level

### Developing and Emerging Market
- Bermuda
- Brazil
- Bulgaria
- Chile
- China
- Colombia
- Cyprus
- Czech Republic
- Estonia
- Hong Kong
- Hungary
- India
- Indonesia
- Kenya
- Latvia
- Lithuania
- Luxembourg
- Malaysia
- Malta
- Mexico
- Nigeria
- Panama
- Poland
- Romania
- Russian Federation
- Singapore
- Slovakia
- Slovenia
- South Africa
- South Korea
- Thailand
- Zimbabwe

### Advanced
- Australia
- Austria
- Belgium
- Canada
- Denmark
- Finland
- France
- Germany
- Greece
- Ireland
- Italy
- Japan
- Netherlands
- New Zealand
- Norway
- Portugal
- Spain
- Sweden
- Switzerland
- United States

### Note
- The economies are classified according to the WEO Statistical Appendix (October 2012), excluding Bermuda.

---

### Appendix Table 2. FDI Financed with New Equity (Fixed Effect) — Selected Coefficients and Statistics

- Variables reported across 8 specifications (columns 1–8). Key reported coefficients and associated t-statistics (when present) include:
  - CIT:
    - Column 1: 136.85 (t-statistic row below: 1.27)
    - Column 2: 68.82 (0.65)
    - Column 3: 61.78 (0.63)
    - Column 4: 74.30 (0.72)
  - CIT*TER:
    - Column 3: -78.38 (-2.76)
    - Column 7: -208.31 (-2.50)
  - CITDWT:
    - Column 1: 62.42 (0.98)
    - Column 2: 37.74 (0.60)
    - Column 3: 37.74 (0.73)
    - Column 4: 49.08 (0.80)
  - CITDWT*TER:
    - Column 1: -58.45 (-2.76)
    - Column 4?: -175.16 (-2.21) [appears aligned with a later column]
  - GDP:
    - Column 1: -0.01 (-1.11)
    - Column 2: 0.00 (-0.30)
    - Column 3: 0.00 (0.09)
    - Column 4: 0.00 (0.91)
    - Column 5: -0.01 (-1.36)
    - Column 6: 0.00 (-0.21)
    - Column 7: 0.00 (0.00)
    - Column 8: 0.00 (0.67)
  - GDPPC:
    - Columns 1–8: 0.00 with corresponding t-statistics:
      - Column 1: -0.13
      - Column 2: -0.03
      - Column 3: 0.04
      - Column 4: 0.12
      - Column 5: -0.31
      - Column 6: -0.02
      - Column 7: -0.05
      - Column 8: 0.03
  - PUBINST:
    - Column 1: 4.07 (0.90)
    - Column 2: 3.95 (0.95)
    - Column 3: 1.76 (0.36)
    - Column 4: 3.61 (0.85)
    - Column 5: 2.91 (0.81)
    - Column 6: 3.75 (0.93)
    - Column 7: 1.40 (0.33)
    - Column 8: 3.11 (0.77)
  - HAVEN: (coefficient row present but specific values not shown in excerpt)
  - Constant:
    - Column 1: -2772.75
    - Column 2: -1514.13
    - Column 3: -981.68
    - Column 4: -2114.17
    - Column 5: -897.88-928.30 (appears concatenated in source)
    - Column 6: -454.15
    - Column 7: -1526.79
- Model controls and diagnostics:
  - Region dummies: Yes in all columns 1–8
  - Year dummies: Columns alternate No/Yes; reported as:
    - Column 1: No
    - Column 2: Yes
    - Column 3: No
    - Column 4: Yes
    - Column 5: No
    - Column 6: Yes
    - Column 7: No
    - Column 8: Yes
  - Adjusted r-squared:
    - Column 1: 0.06
    - Column 2: 0.01
    - Column 3: 0.07
    - Column 4: 0.14
    - Column 5: 0.12
    - Column 6: 0.01
    - Column 7: 0.05
    - Column 8: 0.13
  - Number of observations:
    - Columns 1–4: 244
    - Columns 5–8: 245

---

### Appendix Table 3. FDI Financed with Retained Earnings (Fixed Effect) — Selected Coefficients and Statistics

- Variables reported across 8 specifications (columns 1–8). Key reported coefficients and associated t-statistics (when present) include:
  - CIT:
    - Column 1: 153.82 (2.59)
    - Column 2: 83.33 (1.91)
    - Column 3: 121.56 (2.55)
    - Column 4: 81.92 (1.63)
    - Column 5: 150.83 (2.52)
    - Column 6: 69.85 (1.50)
    - Column 7: 112.06 (2.30)
    - Column 8: 69.47 (1.32)
  - CIT*TER:
    - Appears with mixed entries including:
      - -43.47 (10.05) [notation suggests coefficient and t-statistic but formatting is ambiguous]
      - -204.00 (-2.73)
      - -16.07 (0.15)
      - 17.56 (-2.07)
      - -0.58 (0.24)
    - (Source presentation is fragmented across rows)
  - CITDWT:
    - -114.80 (-0.91)
    - -164.54 (-1.54)
    - -196.34 (-2.18)
  - CITDWT*TER:
    - -67.99 (-0.98)
    - -43.65 (-0.89)
  - GDP:
    - Column 1: 0.00 (0.55)
    - Column 2: 0.01 (1.79)
    - Column 3: 0.01 (1.11)
    - Column 4: 0.01 (1.61)
    - Column 5: 0.00 (0.51)
    - Column 6: 0.01 (1.85)
    - Column 7: 0.01 (0.97)
    - Column 8: 0.01 (1.61)
  - GDPPC:
    - Columns 1–8: 0.00 with t-statistics reported as:
      - Column 1: 1.65
      - Column 2: 2.23
      - Column 3: 1.88
      - Column 4: 2.23
      - Column 5: 1.64
      - Column 6: 2.31
      - Column 7: 1.88
      - Column 8: 2.30
  - PUBINST:
    - coefficients not explicitly shown in excerpt; HAVEN reported below
  - HAVEN:
    - Column 1: 3.34 (1.43)
    - Column 2: 5.46 (1.55)
    - Column 3: 3.21 (1.43)
    - Column 4: 5.59 (1.44)
    - Column 5: 3.06 (1.18)
    - Column 6: 4.50 (1.25)
    - Column 7: 2.40 (0.98)
    - Column 8: 4.61 (1.13)
  - Constant:
    - Column 1: -6021.57
    - Column 2: -5423.49
    - Column 3: -5562.53
    - Column 4: -5385.82
    - Column 5: -4624.86
    - Column 6: -2735.96
    - Column 7: -3322.04
    - Column 8: -2784.31
- Model controls and diagnostics:
  - Region dummies: Yes in all columns 1–8
  - Year dummies: alternating No/Yes as reported:
    - Column 1: No
    - Column 2: Yes
    - Column 3: No
    - Column 4: Yes
    - Column 5: no
    - Column 6: yes
    - Column 7: no
    - Column 8: yes
  - Adjusted r-squared:
    - Column 1: 0.19
    - Column 2: 0.22
    - Column 3: 0.23
    - Column 4: 0.22
    - Column 5: 0.17
    - Column 6: 0.19
    - Column 7: 0.19
    - Column 8: 0.19
  - Number of observations:
    - Columns 1–4: 401
    - Columns 5–8: 392

---

### References (selected as listed in source)
- Altshuler, R., and T. Goodspeed, 2002, “Follow the Leader? Evidence on European and US Tax Competition,” Rutgers University Economics Dept. Working Paper.
- Altshuler, R., and H. Grubert, 2001, “Where Will They Go if We Go Territorial? Dividend Exemption and the Location Decisions of US Multinational Corporations,” National Tax Journal 54(4): 787–809.
- American Tax Policy Institute, 2011, “International Taxation and Competitiveness,” Conference Papers, October (forthcoming in Tax Law Review)
- Bloomberg, “Cash Hoard Grows by $187 Billion in Untaxed Overseas Profits”, March 2, 2012.
- Business Roundtable, 2011, “Taxation of American Companies in the Global Marketplace: A Primer,” April.
- Clausing, K., 2011, “The Revenue Effects of Multinational Firm Income Shifting,” Tax Notes, p. 1580–86.
- De Mooij, R., and G. Nicodeme, 2008, “Corporate tax policy and incorporation in the EU,” International Tax and Public Finance 15: 478–98.
- De Mooij, R., and S. Ederveen, 2008, “Corporate Tax Elasticities: A Reader’s Guide to Empirical Findings,” Oxford Review of Economic Policy, 24(4): 680–97.
- Desai, M., F. Foley, and J. Hines, 2001, “Repatriation Taxes and Dividend Distortions,” National Tax Journal, 54(4), 829–51.
- Desai, M., and J. Hines, 2003, “Evaluating International Tax Reform,” National Tax Journal, 56(30): 487–502.
- Devereux, M., B. Lockwood, and M. Redoano, 2008, “Do Countries Compete Over Corporate Tax Rates?” Journal of Public Economics 92: 1210–35.
- Dharmapala, D., F. Foley, and K. Forbes, 2011, “Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act,” Journal of Finance, 66(3): 753–87.
- Dharmapala, D., and J. Hines, 2009, “Which Countries Become Tax Havens?” Journal of Public Economics 93: 1058–68.
- Feld, L., and J. Heckemeyer, “FDI and Taxation: a Metastudy,” Journal of Economic Surveys, 25(2): 233–72.
- Gravelle, J., 2009, “Tax Havens: International Tax Avoidance and Evasion,” National Tax Journal 62(4): 727–53.
- Grubert, H., 1998, “Taxes and the Division of Foreign Operating Income Among Royalties, Interest, Dividends and Retained Earnings,” Journal of Public Economics, 68(2): 269–90.
- Grubert, H., 2003, “Intangible Income, Intercompany Transactions, Income Shifting, and Choice of Location,” National Tax Journal 56(1) Part 2: 221–42.
- Grubert, H., 2012, “Foreign Taxes and the Growing Share of US Multinational Company Income Abroad: Profits, Not Sales, Are Being Globalized,” National Tax Journal 65(2): 247–82.
- Grubert, H., and R. Altshuler, 2012, “Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax,” mimeo.
- Keen, M., V. Perry, and J. Toro, 2011, “Revenue Mobilization in Developing Countries,” SM/11/21 (Washington: International Monetary Fund).
- Kleinbard, E., 2011, “Stateless Income,” Florida Tax Review 11(9), p. 699–774.
- Maffini, G., 2012, “Territoriality, Worldwide Principle, and Competitiveness of Multinationals: A Firm-level Analysis of Tax Burdens,” Oxford University Centre for Business Taxation, mimeo.
- Markle, K., 2010, “A Comparison of the Tax-Motivated Income Shifting of Multinationals in Territorial and Worldwide Countries,” mimeo.
- Miyatake, T., 2009, “Japan’s Foreign Subsidiaries’ Dividend Exclusion,” Proceedings from the 2009 Sho Sato Conference on Tax Law, Social Policy and the Economy.
- Mullins, P., 2006, “Moving to Territoriality? Implications for the United States and the Rest of the World,” Working Paper No. 06/161 (Washington: International Monetary Fund).
- National Committee on Fiscal Responsibility and Reform, 2010, “The Moment of Truth,” http://www.fiscalcommission.gov/
- Office of Management and Budget, 2009, Budget of the United States Government, Fiscal Year 2010, http://www.gpo.gov/.
- President’s Economic Recovery Advisory Board, 2010, “The Report on Tax Reform Options: Simplification, Compliance and Corporate Taxation,” August. http://www.whitehouse.gov/blog/2010/08/27/perab-tax-task-force-report.
- Report of the President’s Advisory Panel on Federal Tax Reform, 2005, “Simple, Fair and Pro-Growth: Proposals to Fix America’s Tax System,” November.
- Shay, S., J. Fleming, and R. Peroni, 2012, “Unpacking Territorial.” New York University School of Law presentation draft.
- US Government Accountability Office, 2008, “US Multinational Corporations: Effective Tax Rates are Correlated with Where Income is Reported,” Report to the Committee on Finance, US Senate, August.
- US Senate Permanent Subcommittee on Investigations, 2011, “Offshore Funds Located Onshore,” December 14.

*Appendix tables and references extracted from the supplied content unit.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13205.pdf_