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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.

Investments, Foreign. --- Capital exports --- Capital imports --- FDI (Foreign direct investment) --- Foreign direct investment --- Foreign investment --- Foreign investments --- International investment --- Offshore investments --- Outward investments --- Capital movements --- Investments --- Investments: General --- Labor --- Money and Monetary Policy --- Taxation --- Corporate Taxation --- Business Taxes and Subsidies --- Multinational Firms --- International Business --- Corporate Finance and Governance: General --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Wages, Compensation, and Labor Costs: General --- Investment --- Capital --- Intangible Capital --- Capacity --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Public finance & taxation --- Corporate & business tax --- Labour --- income economics --- Macroeconomics --- Monetary economics --- Dividend tax --- Corporate income tax --- Wages --- Private investment --- Currencies --- Taxes --- National accounts --- Money --- Income tax --- Corporations --- Saving and investment --- Germany

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With growing academic and policy interest in research and development (R&D) tax incentives, the question about their effectiveness has become ever more relevant. In the absence of an exogenous policy reform, the simultaneous determination of companies’ tax positions and their R&D spending causes an identification problem in evaluating tax incentives. To overcome this identification challenge, we exploit a U.K. policy reform and use the population of corporation tax records that provide precise information on the amount of firm-level R&D expenditure. Using difference-in-differences and other panel regression approaches, we find a positive and significant impact of tax incentives on R&D spending, and an implied user cost elasticity estimate of around -1.6. This translates to more than a pound in additional private R&D for each pound foregone in corporation tax revenue.

Finance, Public. --- Cameralistics --- Public finance --- Public finances --- Currency question --- Corporate Finance --- Personal Finance -Taxation --- Public Finance --- Taxation --- Business Taxes and Subsidies --- Taxation, Subsidies, and Revenue: General --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Corporate Finance and Governance: General --- National Government Expenditures and Related Policies: General --- Public finance & taxation --- Ownership & organization of enterprises --- Tax incentives --- Tax allowances --- Small and medium enterprises --- Marginal effective tax rate --- Expenditure --- Taxes --- Economic sectors --- Tax policy --- Income tax --- Small business --- Tax administration and procedure --- Expenditures, Public --- United Kingdom

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A growing empirical literature has documented significant profit shifting activities by multinationals. This paper looks at the impact of such profit shifting on real activity and tax competition. Real activity can be affected as profit shifting changes—and theoretically most likely reduces—the cost of capital. Tax competition, even over real capital, is affected, because a permissive attitude toward profit shifting can be seen as a selective tax reduction for multinationals. Tightening profit shifting rules in turn can affect tax competition through the main rate. This paper discusses these issues theoretically and with the help of a simulation to assess the impact of profit-shifting on investment, revenues, and government behavior. Using the theoretical framework, it also provides a brief overview of the related empirical literature.

Public Finance --- Taxation --- Corporate Taxation --- Taxation, Subsidies, and Revenue: General --- Business Taxes and Subsidies --- Public finance & taxation --- Corporate & business tax --- Thin capitalization rules --- Transfer pricing rules --- Corporate income tax --- Anti-avoidance rules --- Revenue administration --- Taxes --- Double taxation --- Corporations --- Revenue --- United States