The impact of controlled foreign company legislation on real investments abroad. A multi-dimensional regression discontinuity design

Controlled foreign company (CFC) rules are frequently imposed by countries as part of their anti-tax-avoidance legislation. This paper aims at quantifying the impact of the German CFC rule on the universe of foreign investments held by German multinational firms. The German CFC legislation gives rise to a multi-dimensional regression discontinuity design, which allows us to estimate local average treatment effects along the dimensions determining treatment. Our results suggest a significant and economically large impact of the CFC legislation on multinationals' real activity abroad. We also find evidence of some heterogeneity in estimated treatment effects according to parametric as well as nonparametric estimates.