TY - JOUR
T1 - Real responses to anti-tax avoidance
T2 - Evidence from the UK Worldwide Debt Cap
AU - Bilicka, Katarzyna
AU - Qi, Yaxuan
AU - Xing, Jing
PY - 2022/10
Y1 - 2022/10
N2 - We analyze how multinational firms reallocate real operations and debt across their affiliates in response to anti-tax avoidance policies. The UK introduced a worldwide debt cap in 2010, generating a quasi-natural experiment that limited interest deductibility for a group of multinational firms. We find that multinationals affected by the reform reduced the amount of debt held in the UK and increased debt held abroad. Affected multinationals reallocated a share of their real operations away from the UK. Our findings provide causal evidence for tax-motivated debt and real activity reallocation within multinationals and show how multinationals can circumvent tax avoidance regulations.1
AB - We analyze how multinational firms reallocate real operations and debt across their affiliates in response to anti-tax avoidance policies. The UK introduced a worldwide debt cap in 2010, generating a quasi-natural experiment that limited interest deductibility for a group of multinational firms. We find that multinationals affected by the reform reduced the amount of debt held in the UK and increased debt held abroad. Affected multinationals reallocated a share of their real operations away from the UK. Our findings provide causal evidence for tax-motivated debt and real activity reallocation within multinationals and show how multinationals can circumvent tax avoidance regulations.1
KW - Capital Reallocation
KW - Debt Shifting
KW - Multinational Companies
UR - http://www.scopus.com/inward/record.url?scp=85137303770&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-85137303770&origin=recordpage
U2 - 10.1016/j.jpubeco.2022.104742
DO - 10.1016/j.jpubeco.2022.104742
M3 - RGC 21 - Publication in refereed journal
SN - 0047-2727
VL - 214
JO - Journal of Public Economics
JF - Journal of Public Economics
M1 - 104742
ER -
