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The role of headquarters in multinational profit shifting strategies

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  • Matthias Dischinger
  • Bodo Knoll
  • Nadine Riedel

Abstract

This paper stresses the special role of multinational headquarters in corporate profit shifting strategies. Using a large panel of European firms, we show that multinational enterprises (MNEs) are reluctant to shift profits away from their headquarters even if these are located in high-tax countries. Thus, shifting activities in response to corporate tax rate differentials between parents and subsidiaries are found to be significantly larger if the parent has a lower corporate tax rate than its subsidiary and profit is thus shifted towards the headquarter firm. This result is in line with recent empirical evidence which suggests that MNEs bias the location of profits and highly profitable assets in favor of the headquarter location. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Matthias Dischinger & Bodo Knoll & Nadine Riedel, 2014. "The role of headquarters in multinational profit shifting strategies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(2), pages 248-271, April.
    • Handle: RePEc:kap:itaxpf:v:21:y:2014:i:2:p:248-271
    DOI: 10.1007/s10797-012-9265-5
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    More about this item

    Keywords

    Multinational firms; Profit shifting; Headquarter location; H25; H26; C33;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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