IMF Working Papers

Where Does Multinational Investment Go with Territorial Taxation? Evidence from the UK

Author/Editor:

Li Liu

Publication Date:

January 12, 2018

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

In 2009, the United Kingdom changed from a worldwide to a territorial tax system, abolishing dividend taxes on foreign repatriation from many low-tax countries. This paper assesses the causal effect of territorial taxation on real investments, using a unique dataset for multinational affiliates in 27 European countries and employing the difference-in-difference approach. It finds that the territorial reform has increased the investment rate of UK multinationals by 15.7 percentage points in low-tax countries. In the absence of any significant investment reduction elsewhere, the findings represent a likely increase in total outbound investment by UK multinationals.

Series:

Working Paper No. 18/7

Subject:

Corporate investment Corporate taxes Foreign direct investment Foreign investment Gross capital formation Gross fixed investment Multinational corporations Private investments Tax policy Territorial taxation United Kingdom