Controlled Foreign Corporation (CFC) legislation is a set of rules implemented by many countries in an effort to counteract tax avoidance by multinational firms. These rules stipulate that selected parts of the income of a foreign subsidiary based in a low-tax country be included in the corporate tax base of its parent company. This income of the foreign subsidiary is thus subject to the higher corporate tax rate which the multinational firm faces in its home country. Exploiting a particular feature of the German tax system, this paper provides evidence on how the effects of CFC rules on multinational firms’ financial decisions depend on home country corporate tax rates. German municipalities have autonomy over their local business tax rates which yields ample variation in corporate tax rates within Germany. Using information on the location of parent companies in Germany, I combine administrative panel data on foreign investment stocks of German multinationals with municipality-level corporate tax rates in Germany. This allows me to observe the tax rate on the income of a foreign subsidiary targeted by the German CFC rules.