Effects of Corporate Taxation and Bilateral Tax Treaties on European Multinationals’ Investment, 2005-2009. A Multi-Country Analysis

This paper analyzes the effects of corporate tax rates and tax treaties on multinationals foreign activity. First, it examines whether host country corporate tax rate and tax treaties influence the probability of a multinational to choose a particular country to locate a new foreign subsidiary. Second, it evaluates to what extent the investment level is determined by taxation. We use data of new foreign subsidiaries located in Europe and take a two-step estimation. The estimated semi-elasticity of effective tax rate is of -1.516. At the intensive margin of investment findings indicate significant effects of both tax treaties and corporate tax rates on the number of employees.