In 2009, the United Kingdom changed from a worldwide to a territorial tax system, abolishing
dividend taxes on foreign repatriation from many low-tax countries. This paper assesses the
causal effect of territorial taxation on real investments, using a unique dataset for multinational
affiliates in 27 European countries and employing the difference-in-difference approach. It finds
that the territorial reform has increased the investment rate of UK multinationals by 15.7
percentage points in low-tax countries. In the absence of any significant investment reduction
elsewhere, the findings represent a likely increase in total outbound investment by UK
multinationals.
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