Faculty of Economics and Business Administration Publications Database

The Taxation of Passive Foreign Investment: Lessons from German Experience

Ruf, Martin
Volume: 45
Number: 4
Pages: 1504 - 1528
Month: November
ISSN-Print: 0008-4085
Link External Source: Online Version
Year: 2012
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.