Outward FDI, Profit Shifting, and Its Impact on the Tax Payments of the Parent Firm: A Case of Indian Manufacturing Firms

Q2 Economics, Econometrics and Finance Global Journal of Emerging Market Economies Pub Date : 2024-05-13 DOI:10.1177/09749101241247114
Amal Krishnan, M. Padmaja
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Abstract

The study examines the links between India’s outward foreign direct investment (OFDI) and possible income-shifting activities by the parent firms. The exercise is undertaken by examining the impact of OFDI on parent firms’ tax payments, profitability, debt, and intangible assets. The study is driven by the observation that nearly 68% of India’s OFDI flows between 2008 and 2020 were directed to offshore financial centers (OFC). The study relies on the Reserve Bank of India’s (RBI) firm-level overseas direct investment data and the Prowess database. We employed the propensity score matching (PSM) technique in combination with the difference-in-difference method to investigate the post-investment effects. Results suggest that overseas investments have resulted in lower payment of corporate taxes, as well as indirect and direct taxes at home. Moderate negative effects were observed in the case of the profitability of the parent firm. On the contrary, OFDI resulted in higher debt levels, particularly for firms investing in OFC destinations. A positive impact on the firm’s intangible assets suggests that income shifting via relocation of intangible assets is not evident. The analysis calls for policies to counter the possible tax leakage at home due to firms investing overseas, especially in OFCs. JEL Classification F23, C14
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对外直接投资、利润转移及其对母公司纳税的影响:印度制造业企业案例
本研究探讨了印度对外直接投资与母公司可能的收入转移活动之间的联系。这项研究通过考察对外直接投资对母公司的纳税额、盈利能力、债务和无形资产的影响来进行。本研究的驱动因素是,2008 年至 2020 年间,印度对外直接投资流量的近 68% 流向了离岸金融中心(OFC)。研究依赖于印度储备银行(RBI)的企业级海外直接投资数据和 Prowess 数据库。我们采用倾向得分匹配(PSM)技术结合差分法来研究投资后效应。结果表明,海外投资降低了企业税以及国内的间接税和直接税。在母公司的盈利能力方面,观察到了适度的负面影响。相反,对外直接投资导致债务水平上升,尤其是投资于海外金融中心的企业。对企业无形资产的积极影响表明,通过无形资产迁移转移收入的现象并不明显。该分析呼吁制定政策,以应对企业海外投资(尤其是在海外金融中心)可能造成的国内税收流失。JEL 分类 F23, C14
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来源期刊
Global Journal of Emerging Market Economies
Global Journal of Emerging Market Economies Economics, Econometrics and Finance-Economics, Econometrics and Finance (miscellaneous)
CiteScore
2.70
自引率
0.00%
发文量
27
期刊介绍: Global Journal of Emerging Market Economies is a peer-reviewed journal. The aim of the journal is to provide an international platform for knowledge sharing, discussion and networking on the various aspects related to emerging market economies through publications of original research. It aims to make available basic reference material for policy-makers, business executives and researchers interested in issues of fundamental importance to the economic prospects and performance of emerging market economies. The topics for discussion are related to the following general categories: D. Microeconomics E. Macroeconomics and Monetary Economics F. International Economics G. Financial Economics H. Public Economics I. Health, Education, and Welfare J. Labor and Demographic Economics L. Industrial Organization O. Economic Development, Innovation, Technological Change, and Growth Q. Agricultural and Natural Resource Economics • Environmental and Ecological Economics R. Urban, Rural, Regional, Real Estate, and Transportation Economics Additionally, the journal would be most interested to publish topics related to Global Financial Crisis and the Impact on Emerging Market Economies Economic Development and Inclusive Growth Climate Change and Energy Infrastructure Development and Public Private Partnerships Capital Flows to and from Emerging Market Economies Regional Cooperation Trade and Investment and Development of National and Regional Financial Markets The Belt and Road Initiative.
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