The Taxation of Passive Foreign Investment: Lessons from German Experience

Publication: Scientific journalJournal articlepeer-review


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.
Original languageEnglish
Pages (from-to)1504 - 1528
JournalCanadian Journal of Economics
Issue number4
Publication statusPublished - 2012

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