No. 13: The relation between tax complexity and foreign direct investments: Evidence across countries

Jahr: 2020

Typ: Working Paper

Abstract

This paper analyzes the association between tax complexity and foreign direct investments (FDI) based on the newly developed Tax Complexity Index (TCI) and its components. For a sample of 15,607 new foreign subsidiaries, we find no association between total tax complexity, as proxied by the TCI, and the location probability. When we decompose the TCI into tax code complexity and tax framework complexity, we find opposing associations. Tax code complexity is positively related to the location probability, while tax framework complexity is negatively related to it. These associations are, for example, driven by the complexity of transfer pricing and loss offset regulations in the tax code and the dimensions guidance, audits, as well as filing and payments, in the tax framework. In additional analyses, we find that the associations are sensitive to certain characteristics, such as country-specific and firm-specific characteristics. For example, the positive tax code association diminishes when tax rates are high. Overall, we are the first to provide empirical evidence on potential costbenefit tradeoffs of tax complexity for FDI and thereby enhance prior literature, which has primarily focused on the costs of tax complexity.

Veröffentlichungsinformationen

TRR 266 researchers

Thomas Hoppe Paderborn University

Deborah Schanz LMU Munich

Deborah Schanz is Professor of Taxation and Accounting at Ludwig-Maximilians-University (LMU) of Munich. Her research interests include the influence of taxation on investment and financing decision-making, tax accounting and international taxation. She is member of the executive committee of the German Academic Association for Business Research (VHB). In addition, she is head of the working group “taxes” of the Schmalenbach- Gesellschaft and member of arqus, working group quantitative business taxation. Her work is published in leading refereed and professional journals such as the Contemporary Accounting Research, European Accounting Review, Review of Managerial Science and the German Zeitschrift für Betriebswirtschaftliche Forschung (ZfbF).

Susann Sturm LMU Munich

Caren Sureth-Sloane Paderborn University

Prof. Caren Sureth-Sloane is Professor of Business Administration, especially Business Taxation at Paderborn University and is the spokesperson of the DFG-funded Collaborative Research Center TRR 266 Accounting for Transparency. She studies the effects of taxation on corporate decisions, especially on risky investments, as well as international business taxation and tax complexity. Since 2010, she has been Guest Professor at the Vienna University of Economics and Business and Principal Investigator of the FWF Doctoral Program in International Business Taxation (DIBT). She received offers from the University of Graz, the Humboldt University of Berlin, the Goethe University of Frankfurt, and the University of Cologne. She is a member of the working group “taxes” and “transfer prices” of the Schmalenbach-Gesellschaft, of which she has been vice president since 2019. In 2013 Caren Sureth-Sloane was appointed a full member of the North Rhine-Westphalian Academy of Sciences, Humanities and the Arts. She is also a member of the DFG-Senate since 2021. Sureth-Sloane received an honorary doctorate from the Faculty of Business, Economics and Social Sciences at the University of Graz in 2021 and an honorary doctorate from the Faculty of Business Studies and Economics at the University of Bremen in 2022.

Johannes Voget University of Mannheim

Johannes Voget holds the Chair of Taxation & Finance at the University of Mannheim. His research interests cover international taxation, corporate finance and public finance. Prior to joining the University of Mannheim, Johannes Voget held a position as Research Fellow at the Oxford University Centre for Business Taxation, with which he is still affiliated as a Research Associate.

DOI

DOI Link

To cite this article

Hoppe, T., Schanz, D., Sturm, S., Sureth-Sloane, C., & Voget, J. (2020). The relation between tax complexity and foreign direct investments: Evidence across countries. TRR 266 Accounting for Transparency Working Paper Series No. 13. https://dx.doi.org/10.2139/ssrn.3526177

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Accounting for Tax Complexity

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Accounting for Tax Complexity

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Abstract

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