Where Does Multinational Investment Go with Territorial Taxation? Evidence from the UK
IMF Working Papers, January 12, 2018
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- Where Does Multinational Investment Go with Territorial Taxation? Evidence from the UK
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Bibliographic details
- Authors: Li Liu
- Published: January 12, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484337493.001
Summary and main finding
- 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.
- The 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.
Methodology
- Dataset: multinational affiliates across 27 European countries.
- Empirical approach: difference-in-difference estimation to identify causal effects on real investment.
Policy-relevant implications
- Territorial taxation that abolishes dividend taxes on foreign repatriation can substantially raise outbound investment rates of multinationals in low-tax jurisdictions.
- Estimated effect size: increase in investment rate by 15.7 percentage points for UK multinationals in low-tax countries.
- Given no significant offsetting investment reductions in other locations, territorial reform is associated with an overall increase in total outbound investment by UK multinationals.
Subjects and keywords
- Subjects: Corporate income tax, Currencies, Dividend tax, Labor, Money, National accounts, Private investment, Taxes, Wages.
- Keywords: Corporate income tax, corporate tax policy, Currencies, Dividend tax, foreign direct investment, Global, gross investment, investment by UK, investment response, multinational firms, Private investment, retained earnings, tax country, tax rate, UK affiliate, UK multinational, Wages, WP.
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