How is the profit taxed
In Ireland, the situation is quite different. Unlike for US investors, the reduction in the EATR is caused by the combination of the tax rate cut and immediate depreciation.
Germany and Ireland again serve as illustrative examples in a separate analysis due to their status as high-tax and low-tax jurisdictions, respectively. The information on the change in EATR from Table 3 is used to compute the changes in inbound and outbound FDI using estimated elasticities from the literature. For the computation of aggregated FDI, a semi-elasticity of This semi-elasticity is the key finding of Feld and Heckemeyer, who analyse the results of primary estimates of 45 empirical studies on the impact of taxation on FDI using a meta-regression design.
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FDI positions before the reform are based on the average values for the years The simulation relies on the assumption that investors do not adjust their principal investment strategy of conducting FDI directly without using intermediate jurisdictions. This may be a concern for the results of European high-tax jurisdictions, as US investors could channel investments in Germany through other jurisdictions e.
Ireland to how is the profit taxed taxation. The implementation of the US corporate tax reform increases this incentive.
Capital Gains Taxes and German-American Estate Planning
Receiving Assuming the average effects found in prior literature, the implementation of the US corporate tax reform is expected to increase US inbound investments originating from the EU28 by EU member states are affected differently depending on their tax rates and their corporate income tax systems in general.
As already seen in Table 3, the US tax reform reduces the effective cross-border tax burdens of low-tax jurisdictions such as Ireland largely symmetrically for inbound and outbound investments.
Conversely, for high-tax jurisdictions such as Germany, effective cross-border tax burdens are affected asymmetrically, implying that the decrease in the effective tax burden of German foreign investments in the US outweighs the relative increase of US foreign investments in Germany.
Hence, these jurisdictions will suffer from an outflow of investment capital to the US.
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For inbound investments in the US, the situation is different. FDI positions before the tax reform are based on the average values for the years This means that despite the overall economic expansion after the US tax reform, which is expected to foster FDI in all countries, the US will benefit disproportionally from additional inward FDI.
Multinational Activity and Profit Sifting: The Case of Germany Abstract: Multinationals can use various strategies to circumvent taxation in high-tax locations. One of them consists in the use of distorted transfer prices enhancing profit shifting. On the other side especially governments in high-tax countries, have introduced different anti-tax avoidance measures in the recent past in order to prevent profit shifting. Anti-tax avoidance legislation has been also in Germany established during the nineties.
Previous studies have shown that there is substantial heterogeneity in how is the profit taxed tax sensitivity of FDI across industries. Hence, the US tax reform can be expected to affect FDI in countries with relatively large manufacturing sectors to a greater extent.