This paper analyses the national tax treatment of interest expenditures of multinational enterprises in a non- cooperative world. It is shown that the international tax system generally leads to distortions in the capital decisions of multinational firms. In contrast to the existing literature on the tax treatment of the expenditures of multinationals, it is found that the form and size of distortions can differ per country depending on the stake a country has in the multinational. Furthermore, internationalisation of the firm's operations and ownership is demonstrated to lead to less generous interest deduction rules of individual countries and in the limit may result in no deduction allowance at all.

R&D expenditures, interest expenditures, international investment, multinational firms, optimal taxation
International Investment; Long-Term Capital Movements (jel F21), Multinational Firms; International Business (jel F23), Efficiency; Optimal Taxation (jel H21), Firm (jel H32)
Tinbergen Institute Discussion Paper Series
Tinbergen Institute

Ossokina, I.V, & Vollebergh, H.R.J. (2000). The Tax Treatment of Interest Expenditures of Multinational Enterprises (No. TI 00-047/3). Tinbergen Institute Discussion Paper Series. Retrieved from