The Taxation of Passive Foreign Investment - Lessons from German Experience
CESifo, Munich, 2009
CESifo Working Paper No. 2624
![](https://cesifo.org/DocImg/cesifo1_wp2624.jpg?c=1689236969)
The paper evaluates the working of German CFC rules that restrict the use of foreign subsidiaries located in low-tax countries to shelter passive investment income from home taxation. While passive investments make up a significant fraction of German outbound FDI, we find that German CFC rules are quite effective in restricting investments in low-tax jurisdictions. We find evidence that the German 2001 tax reform, which unilaterally introduced exemption of passive income in medium- and high-tax countries, has led to some shifting of passive assets into countries for which the exemption was previously limited.
Public Finance