This research addresses the importance of tax holidays in the subsidiary location decisions of U.S.‐based multinationals. The study uses the Analytic Hierarchy Process (AHP) as a basis for the development and analysis of the importance of location and firm‐specific factors in multinationals' plant location decisions. Sixty‐six experienced tax executives of major U.S.‐based multinationals were asked to review a case study involving a subsidiary plant location scenario and to evaluate the relative importance of all of the relevant location‐specific factors using the AHP method of pairwise comparisons. The results indicate that tax holidays are rated among the lower half of a set of 29 factors that firms consider. However, when tax holidays are relevant they act as an incentive to investment rather than discouraging it. The availability of tax‐sparing credits and the firm's foreign tax credit status have little impact in making tax holidays more influential relative to other decision factors.
