Corporate Tax Incentives for Foreign Direct Investment [electronic resource] /
Organisation for Economic Co-operation and Development.
Organisation for Economic Co-operation and DevelopmentContributor
Organisation for Economic Co operation and DevelopmentContent Provider
Organisation for Economic Co-operation and DevelopmentContent Provider
Paris : OECD Publishing,
2001.
This report examines the currently highly topical issue of corporate tax incentives for foreign direct investment (FDI). The ability to offer an internationally competitive tax system is increasingly seen today as a determinative factor influencing FDI. With corporate income tax identified as the component that impacts most directly on multinational companies, much of the pressure for lowering host country tax burdens to attract capital is focused upon this tax. At the same time, corporate taxation plays an important withholding function, raising revenues on domestic-source income that might otherwise escape the tax net. The desire to tax this income while not discouraging foreign investors raises critical questions concerning the sensitivity of FDI to taxation and the appropriate setting of various tax provisions that determine the host country tax burden and influence investment and financing behaviour.This report considers various corporate tax measures to encourage FDI and a range of issues relevant to assessing their use. Given the central question of how much additional investment can be expected from tax relief and at what cost, the report summarises recent empirical findings which show increasing sensitivity of FDI to host country tax burdens, consistent with trends towards increasing globalisation of production. Other findings are considered which highlight tax-planning opportunities created by certain approaches, leading to unintended revenue leakage. The report emphasises the need to assess possible host and home country tax interactions which can influence tax incentive results, and more generally the need to look beyond what conventional economic analysis might suggest.While the report is intended primarily as a guide for policy makers in emerging market economies, it may serve as a reference document to tax policy analysts more generally
Executive Summary -- Chapter 1. The Role of Corporate Income Tax and the Rationale for TAx Incentives for FDI -- Chapter 2. Corporate Tax Incentives for FDI: Main Types and Channels of Influence -- Chapter 3. Assessing Host and Home Country Tax-Interaction Effects -- Chapter 4. Empirical Findings onthe Sensitivity of FDI to Host Country Tax Burdens -- Chapter 5. Perspectives on the Pros and Cons of Alternative Tax Relief Instruments -- Chapter 6. An Overview of the Main Issues -- Annex 1. Profit Repatriation Tax Rates under Alternative Home Country Tax Systems -- Annex 2. Host Country Tax Incentive Relief under HomeCountry Tax Deferral -- Annex 3. Possible Irrelevance of Home Country Taxation: Distinguishing FDI Financed by Retentions versus New Equity Capital -- Annex 4. Investment Equation of Altshuler, Grubert and Newlon (1998) -- Annex 5. Illustration of Unintended Tax Avoidance Facilitated by Tax Holiday Incentive -- Annex 6. Econometric Findings on the Implications of High Statutory Corporate Tax Rates -- Annex 7. Analysing the Influence of Financing Incentives (Imputation Relief and Divident Withholding Tax Rate Reduction)
This report examines the currently highly topical issue of corporate tax incentives for foreign direct investment (FDI). The ability to offer an internationally competitive tax system is increasingly seen today as a determinative factor influencing FDI. With corporate income tax identified as the component that impacts most directly on multinational companies, much of the pressure for lowering host country tax burdens to attract capital is focused upon this tax. At the same time, corporate taxation plays an important withholding function, raising revenues on domestic-source income that might otherwise escape the tax net. The desire to tax this income while not discouraging foreign investors raises critical questions concerning the sensitivity of FDI to taxation and the appropriate setting of various tax provisions that determine the host country tax burden and influence investment and financing behaviour.This report considers various corporate tax measures to encourage FDI and a range of issues relevant to assessing their use. Given the central question of how much additional investment can be expected from tax relief and at what cost, the report summarises recent empirical findings which show increasing sensitivity of FDI to host country tax burdens, consistent with trends towards increasing globalisation of production. Other findings are considered which highlight tax-planning opportunities created by certain approaches, leading to unintended revenue leakage. The report emphasises the need to assess possible host and home country tax interactions which can influence tax incentive results, and more generally the need to look beyond what conventional economic analysis might suggest.While the report is intended primarily as a guide for policy makers in emerging market economies, it may serve as a reference document to tax policy analysts more generally
Bibliographic Level Mode of Issuance: Monograph
Taxation
Finance and Investment
Investments, Foreign
Tax incentives
Finance
Investment & Speculation
Business & Economics
OECD tax policy studies