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The Taxation of Passive Foreign Investment - Lessons from German Experience

Author

Listed:
  • Martin Ruf
  • Alfons J. Weichenrieder
  • Alfons Weichenrieder
Abstract
The paper evaluates the working of German CFC rules that restrict the use of foreign subsidiaries located in low-tax countries to shelter passive investment income from home taxation. While passive investments make up a significant fraction of German outbound FDI, we find that German CFC rules are quite effective in restricting investments in low-tax jurisdictions. We find evidence that the German 2001 tax reform, which unilaterally introduced exemption of passive income in medium- and high-tax countries, has led to some shifting of passive assets into countries for which the exemption was previously limited.

Suggested Citation

  • Martin Ruf & Alfons J. Weichenrieder & Alfons Weichenrieder, 2009. "The Taxation of Passive Foreign Investment - Lessons from German Experience," CESifo Working Paper Series 2624, CESifo.
    • Handle: RePEc:ces:ceswps:_2624
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    foreign direct investment; CFC regulation; passive investment;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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