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Withholding taxes and international bank credit terms, Volume 1
 
Author:Huizinga, Harry; Collection Title:Policy, Research, and External Affairs working paper ; no. WPS 765. Debt and international finance
Date Stored:1991/09/01Document Date:1991/09/30
Document Type:Policy Research Working PaperLanguage:English
Major Sector:Public Administration, Law, and JusticeReport Number:WPS765
Sub Sectors:Public Financial ManagementSubTopics:Environmental Economics & Policies; Economic Theory & Research; Banks & Banking Reform; Strategic Debt Management; Public Sector Economics
Volume No:1  

Summary: This report shows empirically that international differences in withholding tax rates are indeed largely reflected in bank credit terms. Using a sample of 510 loans to 14 debtor nations originated between 1971 and 1981, the author finds that the developing countries have been able to reduce their interest expense by an estimated 56 cents for every dollar of tax withheld at the source. He concludes that tax treatment in the creditor country of interest income from foreign sources probably still has an important effect on credit terms. In particular, limits on tax credits for foreign-interest withholding taxes, as effectively introduced by the 1986 U.S. tax reform, will probably lead to less favorable credit terms.

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