Immobilizing corporate income shifting: Should it be safe to strip in the harbor?

Thomas A. Gresik*, Dirk Schindler, Guttorm Schjelderup

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

11 Citations (Scopus)


Many subsidiaries can deduct interest payments on internal debt from their taxable income. By issuing internal debt from a tax haven, multinationals can shift income out of host countries through the interest rates they charge and the amount of internal debt they issue. We show that, from a welfare perspective, thin capitalization rules that restrict the amount of debt for which interest is tax deductible (safe harbor rules) are inferior to rules that limit the ratio of debt interest to pre-tax earnings (earnings stripping rules), even if a safe harbor rule is used in conjunction with an earnings stripping rule.

Original languageEnglish
Pages (from-to)68-78
Number of pages11
JournalJournal of Public Economics
Publication statusPublished - Aug 2017
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2017 Elsevier B.V.


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