Top publication by Maximilian Todtenhaupt

13 September 2022 13:55

Top publication by Maximilian Todtenhaupt

The article "Withholding Taxes, Compliance Cost, and Foreign Portfolio Investment" has been published in Accounting Review.

Accounting Review is included on the NHH Bonus list and on the Financial Times Research Rank List, and it is also on level 4* in the ABS Academic Journal Guide.

Jacob, Martin, and Maximilian Todtenhaupt: Withholding Taxes, Compliance Cost, and Foreign Portfolio Investment, Accounting Review, Online 07.07.2022.


We examine the effect of compliance frictions in reclaiming foreign withholding tax overpayments on foreign portfolio investment (FPI) using data on bilateral FPI around the globe and on U.S. institutional investors’ foreign holdings. Exploiting variation in withholding tax overpayments for 36 investor countries and 110 issuer countries, we find that withholding tax overpayments adversely affect FPI because of the high compliance costs to international investors in claiming foreign tax credits.

Cross-sectional tests further show that the adverse effect of withholding tax overpayments on FPI is reduced when compliance costs in claiming these overpayments from foreign countries are lower. Our results indicate that eliminating most of the compliance costs in the reclaim process by implementing a relief at source mechanism could increase FPI by about 7.6%.