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The paper considers profit shifting behavior using data on German inbound and outbound FDI. It finds an empirical correlation between the home country tax rate of a parent and the net of tax profitability of its German affiliate that is consistent with profit shifting behavior. For profitable affiliates that are directly owned by a foreign investor the evidence suggests that a 10-percentage point increase in the parent’s home country tax rate leads to roughly half a percentage point increase in the profitability of the German subsidiary. On the outbound side of German FDI, the data provides some evidence that tax rate changes in the host country lead to a stronger change in after-tax profitability for affiliates that are wholly owned, which may reflect the larger flexibility of these firms in carrying out tax minimizing behavior without interference of minority owners. [ABSTRACT FROM AUTHOR]

This paper provides an empirical analysis of the impact of taxes other than profit taxes on both investment and location decisions of multinationals. Besides effects of corporate income taxes, the results confirm significant adverse effects of nonprofit taxes such as property taxes, sales taxes and VAT, and import duties on the level of FDI. However, once country-specific fixed effects are included, most of the effects of nonprofit taxes vanish. This is supported by the analysis of location decisions, where taxes other than corporate income taxes are not found to exert any adverse effects on the location probability in a setting with country-specific fixed effects. [ABSTRACT FROM AUTHOR]

We characterize optimal taxation of foreign capital and optimal sovereign debt policy in a small open economy where the government cannot commit to policy, seeks to insure a risk-averse domestic constituency, and is more impatient than the market. Optimal policy generates long-run cycles in both sovereign debt and foreign direct investment in an environment in which the first best capital stock is a constant. The expected tax on capital endogenously varies with the state of the economy, and investment is distorted by more in recessions than in booms, amplifying the effect of shocks. The government’s lack of commitment induces a negative correlation between investment and the stock of government debt, a “debt overhang” effect. Debt relief is never Pareto improving and cannot affect the long-run level of investment. Furthermore, restricting the government to a balanced budget can eliminate the cyclical distortion of investment. [ABSTRACT FROM AUTHOR]

In the past 20 years, the world has changed significantly, and so has the global economy. With these fundamental changes comes the demand for a new tax system that meets the needs of the modern company and individual. The three basic measures of a sound tax system are simplicity, efficiency, and equity; none of the current tax system and reform strategies meet all of these tests. The key to the initial popularity of a flat tax is its radical simplicity. It abolishes almost all tax deductions, credits, and exclusions in income taxes. This new system of taxation is gradually replacing outdated, progressive-rate tax systems which discourage the most productive people from working and saving more, and in turn reduce growth. The flat tax has already had remarkable results in Eastern European countries, such as Estonia, Lithuania, Latvia, Russia, and Ukraine. This reform has created a competitive fiscal environment, which encourages investment, risk taking, entrepreneurship and foreign capital inflows and provides increased work incentives. In the present article, after discussing the economic efficiency of progressive tax system, we review experiences of Eastern European countries which have chosen flat-rate taxation model. [ABSTRACT FROM AUTHOR]

Under current accounting rules, U.S. multinationals are not required to record liabilities for future taxes on earnings of foreign subsidiaries, as long as those earnings are deemed to be indefinitely reinvested in those subsidiaries. These rules allow considerable flexibility in the designation of earnings deemed permanently reinvested and the reporting of expected repatriation taxes thereon. Some firms disclose amounts for unrecorded taxes on permanently reinvested earnings, but most do not. We show that while estimated repatriation taxes are relevant in explaining share prices of non-disclosing firms, they are less relevant than firm-disclosed amounts are in explaining share prices of disclosing firms. This result is due to estimated repatriation tax amounts exhibiting downward bias, and less accuracy for actual repatriation tax effects, relative to firm-disclosed repatriation tax amounts. We propose new disclosures designed to improve the relevance of estimated repatriation tax amounts. [ABSTRACT FROM AUTHOR]

This article addresses the issue of controversy in tax laws in the European Union related to the new tax system adopted by some Member States relatively new entered on the single tax rate, the advantages and disadvantages of adopting this system of taxation. Also, the article discusses the impact of the new fiscal policies adopted by Romania, by implementing the flat tax on foreign direct investment. From this point of view were analyzed developments flow and the stock of foreign direct investment, taking into account the performance indicators of the flow of FDI, but also indicative of the relative importance of the stock of FDI, such as the stock of FDI / capita - indicator which expresses attractive business environment of the host country for foreign investors, the stock of FDI expressed as a percentage of GDP - is another way to express permeability local business environment to the investors, if FDI is addressed in the light of the host country, or attractiveness economy to potential investors, whether FDI are reviewed in the light of their interests, the average value of FDI projects. [ABSTRACT FROM AUTHOR]

Foreign investment decisions of firms are often characterized by investment irreversibility, uncertainty, and the ability to choose the optimal timing of foreign investments. We embed these characteristics into a real option theory framework to analyze international competition among countries to attract mobile investments when firms, after the investment is sunk, can shift profit to low tax countries by transfer pricing. We find that an increase in the uncertainty of profit income reduces the equilibrium tax rates, whilst lower investment costs or larger profits, counteracts the negative fiscal externality of tax competition leading to higher equilibrium tax rates. [ABSTRACT FROM AUTHOR]

Chapter 6 of the "Task Force on International Tax Reform," is presented. It reveals that the purpose of the source rules in the context of the foreign tax credit limitation is to identify what income the United States is willing to recognize as properly within the tax jurisdiction of the source country.

While offering tax incentives to attract foreign direct investment has become a global phenomenon and part of economic globalization in the 1990s, it also is political and controversial. But the political determinants of tax incentive policies have rarely been analyzed. This article fills this gap by making two contributions. First, I offer a theory that explains how political regime type influences tax incentive policy in the cross-national setting. Second, I evaluate the theory with a statistical analysis of 52 developing countries. The findings support my main theoretical expectations. Countries with better rule of law offer lower levels of tax incentives, and the effect is stronger for more democratic countries. In democracies, FDI inflows are negatively associated with the level of incentives. Autocratic regimes maintaining restrictions on foreign entry adopt lower levels of incentives than those without restrictions. I discuss the policy implications of these findings. [ABSTRACT FROM AUTHOR]

This article presents legislative developments in international taxation in Canada and features several tax firms and advisers in the country as of September 2005. A review of Canadian tax developments for the past year highlighted three legislative developments: the introduction of a package of draft technical amendments to the Income Tax Act; proposed legislation to provide for a cap on deductibility of losses derived from interest and other expenses; and proposals for the taxation of foreign investment entity participation and of non-resident trusts. Leading tax firms in Canada Davies Ward Philips & Vineberg, Ostler Hoskin & Harcourt, Ernst & Young; and KPMG.

Focuses on special tax considerations applicable to U.S. private equity and venture capital funds with non-U.S. investments. Tax considerations in domestic investments; Basics of foreign tax credit management; International tax considerations in typical investment structures.

This article assesses the impact of recent tax exemption legislation as a vehicle for the attraction of investment in the quest for the development of international energy in Nigeria, particularly oil and gas. It seeks to argue that generous tax incentives are the most successful method of inducement of foreign investors, judging from the rising profile in the expansion of investment in the gas sector and the attendant increase in world trade. It attempts to assert that tax incentives alone, without the combination of other favourable factors, like political stability, observance of the rule o flaw and deregulation or trade liberalisation, cannot produce the desired result of local industrialisation and integration into the world economy. [ABSTRACT FROM AUTHOR]

Details the changes in the corporate taxation system for foreign investors in Brazil. Foreign currency fluctuations; Social contribution tax; Modification of withholding tax levied on overseas remittances; Deductibility of interest payments; Transfer pricing control; Distribution of profits accrued abroad.

Discusses several issues related to tax in the United States (US) as of January 2000. Efforts of the US Tax Court to curb corporate tax shelters; Clarification from the US Internal Revenue Service on foreign tax credit; Modifications in the Foreign Investors in Real Property Tax Act. INSETS: Compaq's foreign tax credits;Tax treaties;Taxpayer may change methods for interest expense allocation.

The paper analyses state-contingent taxation of the return to foreign investment in a country. It is assumed that the investment will be undertaken only if the investor obtains a given expected utility from the project. The optimal tax schedule across income levels in different states is characterized in cases where private domestic income is exogenous and in the case of endogenous domestic taxation. In the latter case the striking results are obtained that the total tax revenue should always increase when total income increases, and it makes no difference for the rate of increase whether it is domestic or foreign income that increases. [ABSTRACT FROM AUTHOR]

Capital import taxes lower (raise) world (home) interest rates. This shifts home expenditure from the present to the future and foreign expenditure from the future to today. With identical home and foreign expenditure patterns, the change in the composition of world expenditure has no effects on demand for any commodity. Then capital controls have no effect on the real exchange rate. When consumers prefer home goods, capital controls cause lower demand today for home goods. In that case, capital controls lower the real exchange rate today. This result is mitigated when the country imposing capital controls is a large debtor. [ABSTRACT FROM AUTHOR]

Examines foreign investment tax and tariff policies in developing countries. Optimalization of subsidies on foreign capital coupled with tariff; Switching of domestic capital subsidy to tax policy through the introduction of tax credit system by a foreign country; Welfare effects of taxes and tariffs without international tax credits.

Reports that merger and acquisition opportunities have become move availabile in Korea, since the Korean government eased restrictions on foreign investment, highlighting the tax structures. Details on issues which should be considered when selling shares or assets; Examination of the importance of Korean tax issues for a foreign corporation. INSETS: The reform porgramme;Yuhan-Hoesa--a corporation treated as a partnership for US tax....

Provides a tax guide to foreign investors with acquisition plans in Japan. Factors that contributed to the opening of opportunities for foreign corporate investors and financial institutions to acquire businesses in Japan; Deciding whether to structure the transaction as a sale of shares or assets; Provisions under the Corporate Tax Law; Liberal Democratic Party's proposed reduction in the combined corporate tax.

Considers the issues that affect foreign investment decisions in Singapore. Status of holding companies; Liability to income tax; Treatment of dividends; Singapore double tax agreements; Management fees and head costs; Tax benefits from being an OHQ, a Singapore company whose business is the provision of management and other headquarters related services; Qualification requirements.

Outlines fundamental information about the tax environment and a number of tax strategies which may be used by foreign investors entering the Japanese market. Local participation requirements; Exchange controls; Types of entities; Corporate income tax; Comparison of branch and subsidiary; Investment incentives; Net operation losses; Related-party debt; Tokumei kumiai (TK) contract; Mergers and acquisitions.

Identifies the direct and indirect taxes which affect foreign investment decisions in China. Relevant industry sector; Preference for direct and indirect investment; Taxation of foreign imported goods; Geographical location for investment; Tax planning opportunities.

Explores various aspects of Australia's system of taxation for foreign investors. Advantages being offered by Australia to foreign investors; Comparison with other Asian countries; Foreign investment policy in Australia; Corporate income tax; Financing issues; Acquisition finance; Transfer pricing; Withholding taxes; Anti-avoidance rules; Tax rates on profit distribution.

In this article the author comments on the research paper by Richard C. Sansing, which analyses the foreign investment decisions in the presence of real options. According to the author the paper contributes to the area of taxation research. Sansing, by modeling tax rules more carefully than in earlier research, overturns an old, incomplete intuition that investment decisions are independent of whether the home country tax regime is territorial or worldwide. He remarks that the paper shows that tax rules may affect the desirability and timing of foreign investment. He doubt that the ordering presented in this paper is robust to relaxation of the underlying assumptions because there are many ways to structure similar models. The present paper focuses on the imp act of the tax regime, either territorial or worldwide. The lower rate of tax applies even if the dividend is attributable to foreign source income imputation systems reduce recipients' taxes only on dividends attributable to domestic source income.

This paper extends the literature on the effect of taxes on foreign investments in two ways. First, it shows that the effect of tax depreciation on investment decisions depends jointly on whether the home country uses a territorial or worldwide tax system, and whether the investment is financed from accumulated foreign earnings or flew capital. Second, the paper examines an investment decision in a setting in which technological improvements create a benefit to postponing the investment in a positive net present value project. The conventional wisdom that repatriation taxes are neutral with respect to investments financed by the foreign subsidiary does not hold in this setting. A subsidiary with earnings subject to repatriation taxes will exhibit less patience than a subsidiary not subject to repatriation taxes. [ABSTRACT FROM AUTHOR]

This note shows how international tax competition can give rise to special tax breaks for foreign investment. Discriminatory tax treatment of outside investment can give rise to socially harmful cross-flows of international investment. Paradoxically an increase in the costs associated with foreign investment can increase welfare. [ABSTRACT FROM AUTHOR]

Focuses on the tax treatment of original issue discount income earned by foreign investors in the United States. Different views prior to the changes imposed by the Economic Recovery Tax Act of 1981; Prospects faced by foreign investors in the context of the change in law; Development of the law relative to discount on both Treasury bills and original issue discount obligations.

Focuses on the partnership taxation and provisions dealing with the continuation and termination of a partnership in United States. Analysis of the concept of continuation and termination; Presentation of a constructive regulation; Interpretations of the termination provision.

ABSTRACT: This study investigates the influence of both the state corporate income tax rate and the form of the income tax base structure on foreign investment in manufacturing assets. An econometric model of foreign investment is derived from a supply-oriented theory of regional investment, That is, the decision to develop productive capacity in one region as opposed to another is due to regional advantages. Empirical results suggest that tax structures that use the unitary method of accounting have a substantial impact on the amounts of foreign investment. On the other hand, business income tax rates appear to have little impact. [ABSTRACT FROM AUTHOR]

ABSTRACT: This paper examines the likelihood that U.S.-based multinational enterprises (MNEs) will alter their corporate structure in response to changes in U.S. tax policies towards income derived from direct foreign investments. If the deferral privilege is eliminated, it is probable that a number of corporations having foreign subsidiaries will decontrol part or all of their subsidiaries that retain the controlled foreign corporation (CFC) classification in order to avoid the additional U.S. tax burden. The most likely means for decontrolling these subsidiaries is by either selling additional common stock that has not been previously issued or by making a tax-free distribution of the CFC stock under Section 355. For the "average" subsidiary, decontrol will increase the net dividends to shareholders by approximately 20 to 25 percent. Decontrolling is more likely for subsidiaries that are incorporated and/or operating in low tax rate jurisdictions and which reinvest half or more of their earnings. For these decontrolled subsidiaries, the increased dividends available to the shareholders can be nearly six times as large as are the dividends when CFC status is retained following the repeal of the deferral privilege. [ABSTRACT FROM AUTHOR]

This paper extends the work of Hamilton and Svensson (1985) and Brecher and Findlay (1982). It generalizes the welfare results and provides major findings regarding the tax policy for foreign investment. Under the DZ setting, a tax on the return to foreign investment is shown to be the optimal policy while the tariff is irremovable. Although Brecher and Findlay (1982) reached this conclusion, this paper first derives the magnitude of the tax rate and shows the variables that influence this magnitude. The paper shows that under the DFZ setting, a subsidy to foreign investment is optimal, provided that the host country also prevents foreign firms from paying the tariff-protected goods as wages. The plan of this paper is as follows: In section II the author derives the welfare effect of foreign investment in the domestic zone, with and without a tax levied on the returns to foreign capital, assuming that the volume of foreign investment is exogenous. In section III he endogenizes foreign investment and derives the optimal tax rate on the returns to foreign capital. In section IV he extends and compares these results to a duty-free zone, and in section V offers some concluding remarks. [ABSTRACT FROM AUTHOR]

Although direct foreign investment is of considerable, and increasing importance in many countries, optimal tax strategies for capital importing countries have received relatively little attention in recent studies of taxation and direct investment — for example, Horst, Hartman and Feldstein and Hartman. Furthermore, whereas economists concerned with the practical design of tax/subsidy policies for capital importing countries, and especially LDCs, have stressed the need to take various market distortions into account (see e.g. Bos et al.), studies to date have been limited to competitive economies. The purpose of this paper is to investigate the tax policy of a capital importing country when the direct investor borrows a fraction of its capital in the host country, and to focus upon an aspect of this problem which is of general significance for the taxation of foreign earnings. For reasons discussed below, the direct investor will commonly face a less than perfectly elastic supply of capital in the host country, so that a "monopsony" rent is acquired. Similarly, a monopsony rent may also accrue if, for example, a plantation or mining company employs relatively large tracts of land, or employs relatively large fractions of the local labour force. Feldstein and Hartman have considered the implications of monopsony rents, but only for the taxation policy of the capital exporting country, reaching the conclusion that no intervention is optimal. In contrast, the analysis here suggests that the capital importing country should not overlook these rents when setting foreign earnings tax rates; nor should it overlook whether monopsony rents accrue to overseas residents when choosing a subsidy to correct for the allocative distortion arising from the monopsonistic factor market. [ABSTRACT FROM AUTHOR]

This article derives optimal tax rules for both the capital-exporting and capital-importing countries. It is useful to begin by describing the economy of the home country and the problem of choice is seen by a representative home country firm that has a foreign subsidiary. The subsidiaries of the home country firms produce in the host country with a technology that in general differs from both their technology at home and the technology of the local firms in the host country. The analysis in this article should be extended to incorporate the role of trade, the use of portfolio investment and the multinational character of investment and tax competitiveness. The rapid growth of international investment points clearly to the potential gains from a better understanding of these issues.

The article discusses the characteristics of colonial status of the U.S. economy. It relates that communities and governments in the U.S. have been searching for foreign investments, providing a favorable tax treatment, facilities financed through the issue of government tax exempt bonds. Moreover, it highlights the importance and danger of non-economic of neo-colonialism that tends to reflect foreign control over the U.S. economic interests.

The article focuses on the impact of the Tax Reform Act of 1976 passed by the 94th Congress on multi-national marketing operations. The article analyzes one of the intentions of the law that it would revise the way in which corporations and individuals pay tax on foreign income. It is stated that on a practical level, the Act would impose a much higher tax on U.S. nationals living and working overseas. It carries explanations of the old law, new law, domestic international sales corporations and western hemisphere trade corporation. The article points out impacts of the law and states that there appear to be several inequities in the law. Some of impacts include: extreme difficulties for firms to adjust the marketing and operating plans to reflect the increased costs for a minimum of eighteen months, treatment of various allowances as foreign source income, and adverse effects on the strength of the domestic industry. The article adds that the law strikes hardest at American firms with an ethnocentric philosophy and least affects those with a geocentric philosophy.

This article summarizes the papers "A Multilateral Solution for the Income Tax Treatment of Interest Expenses," by Michael J. Graetz published in "Bulletin for International Taxation," and "Debt and the Profitability of Foreign-Controlled Domestic Corporations in the United States," by Harry Grubert. The first paper argues that the policy case for interest deductibility restrictions has been incorrectly framed as discrete inquiries in the context of either outbound or inbound direct investment. The second presents an empirical analysis, using 2004 tax return data, of the debt levels and associated profitability of foreign-controlled domestic corporations (FCDCs) in the U.S.

Provides information on issues related to beneficial ownership of royalties upon the expansion of businesses in foreign markets. Relation of beneficial owner and economic power according to the International Bureau of Fiscal Documentation; Laws under the Organization for Economic Cooperation and Development which elaborates the definition of beneficial ownership; Main characteristics of beneficial ownership as summarized in court cases.

Looks at Israel's tax regime and assesses the impact of the taxation system proposals on foreign investors. Aspects of taxation in Israel that are relevant to foreign investors; Tax reform proposals of the Ben Basat Commission or the Public Commission for the Reform of Income Tax; Double taxation treaties of Israel.