The effect of cross-border group taxation on ownership chains

I examine the influence of cross-border group taxation on ownership chains for European multinational firms. I show that the tax advantages of cross-border group taxation regimes can only be exploited if a multinational firm has at least one intermediate subsidiary in the country allowing for cross-border group taxation. I use the introduction of the Austrian cross-border group taxation regime as a natural experiment to test my hypothesis. I find that the probability that a foreign parent company holds an Austrian intermediate subsidiary is significantly higher after the introduction of the group taxation regime. However, I am only able to observe this effect for parent companies already invested in Austria prior to the introduction of the cross-border group taxation regime. I am unable to provide evidence that this also holds for parent companies who are not invested in Austria prior to the introduction of the cross-border group taxation regime. My results contribute to a nascent literature that examines the influence of taxes on ownership chains, and a larger literature on (intermediate) subsidiary location decisions for multinationals. My findings provide empirical evidence that could be useful to governments in those countries attempting to reform their group taxation regimes, or who are implementing cross-border group taxation regimes for the first time.