The Department of Business and Management Science and NoCeT invite you to a faculty seminar with Ruby Doeleman, WU Vienna University of Economics and Business.
Substance rules aim to ensure that anti-profit shifting rules do not harm genuine economic activities. This paper analyzes whether the requirement to have economic substance increases fixed assets and employment in low-tax affiliates. Analytically, substance rules incentivize multinational enterprises to reduce the number of low-tax affiliates, but increase investment in the remaining low-tax affiliates to continue shifting profits.
Estimates from a staggered difference-indifferences design using affiliate-level data from 2014-2022 indicate that substance rules increase fixed assets and employment in low-tax countries. I do not find significant evidence for investment being shifted away from high-tax affiliates. The findings suggest that multinational enterprises do exploit substance rules to continue shifting profits.