International taxation and MNE investment: evidence from the UK change to territoriality

Liu, Li (2015) International taxation and MNE investment: evidence from the UK change to territoriality. Centre for Business Taxation WP 15/25, Oxford, UK.

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In 2009, the United Kingdom switched from a worldwide taxation system to a territorial system which exempts all foreign-earned active income from taxation. This reform fundamentally changes the dividend tax imposed on UK multinationals in many low- tax countries. In this paper the author uses data on multinational affiliates located in 27 European countries and employ the difference-in-differences approach to assess the causal effect of dividend exemption on real investment by UK-owned multinational affiliates. The author finds that the UK's switch to dividend exemption has increased outbound investment by UK multinationals by around 15.7 percentage points in countries with a lower corporate tax rate than the UK. The observed increase, though temporary in nature, represents an addition in aggregate investment, as there is no evidence on a concurrent decrease in investment by UK multinationals in high-tax countries or in the UK.

Item Type: Other Working Paper
Additional Information: JEL Classification: H25, F23, G30
Keywords: foreign direct investment, corporate tax policy, multinational firms
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation > CBT Working Papers
Date Deposited: 27 Apr 2016 09:44
Last Modified: 27 Apr 2016 09:44

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