The effects of company taxation in EU accession countries on German multinationals

<p><p>This paper investigates the effects of company taxation in European Union (EU) accession countries on German multinational enterprises. In 2004 and 2007, 10 former socialist eastern European countries joined the EU. While EU integration is associated with increasingly favorable investment conditions, accession countries also pursue active strategies to attract foreign firms. In particular, taxes on corporate income have been significantly reduced during the last decade. We analyze whether corporate taxation significantly affects three aspects of multinational activity in eastern Europe: location decision, investment decision, and capital structure choice. We find that local taxes are negatively related to location decisions and investment levels. The analysis of the capital structure confirms that higher local taxes imply higher debt-to-capital ratios.</p></p>