The capital structure of large firms and the use of Dutch financing entities

Resource Information

The work The capital structure of large firms and the use of Dutch financing entities represents a distinct intellectual or artistic creation found in International Bureau of Fiscal Documentation. This resource is a combination of several types including: Work, Language Material, Continuing Resources.

Label

The capital structure of large firms and the use of Dutch financing entities

Creator

• Weyzig, F

Subject

• debt
• financing
• interest
• intra-group financing
• MNE
• tax arbitrage
• tax avoidance
• withholding tax
• subsidiary company

Language

eng

Summary

Large firms may issue debt securities to obtain external financing or set up lowly-taxed affiliates for internal debt-shifting purposes. In addition, they may channel interest payments through Dutch special purpose entities (SPEs) to avoid withholding taxes, a widely-used arbitrage strategy. This paper analyses the capital structure of large EU-based multinationals, providing evidence that the use of Dutch-issuing SPEs is associated with higher debt financing relative to equity. Furthermore, it shows that EU subsidiaries of larger firms are more leveraged and that the use of Dutch on-lending SPEs is also associated with higher subsidiary leverage. The paper provides evidence that Dutch SPEs facilitate higher external debt financing as well as internal debt shifting. The findings indicate that withholding taxes on interest payments to entities outside the EU, determined by individual EU member states, are not very effective. The national tax systems of EU countries such as the Netherlands, which does not impose interest withholding tax, allow large firms to avoid those taxes

Citation source

In: Fiscal studies. - London. - Vol. 35 (2014),

Geographic coverage

European Union

Language note

English