This paper analyses the national tax treatment of interest expenditures of multinational enterprises in a non- cooperative world. It is shown that the international tax system generally leads to distortions in the capital decisions of multinational firms. In contrast to the existing literature on the tax treatment of the expenditures of multinationals, it is found that the form and size of distortions can differ per country depending on the stake a country has in the multinational. Furthermore, internationalisation of the firm's operations and ownership is demonstrated to lead to less generous interest deduction rules of individual countries and in the limit may result in no deduction allowance at all
