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Internal Debt And Multinational Profit Shifting: Empirical Evidence From Firm-Level Panel Data

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  • Buettner, Thiess
  • Wamser, Georg

Abstract

This paper explores the role of internal debt as a vehicle for shifting profits to lowtax countries. Using data on German multinationals, it exploits differences in taxes in more than 100 countries over 10 years. The results confirm that internal debt is used more by multinationals with affiliates in low-tax countries and increases with the spread between the host-country tax rate and the lowest tax rate among all affi liates. However, tax effects are small, suggesting that profit shifting by means of internal debt is rather unimportant for German firms. Further testing indicates that this is partly due to the German controlled foreign corporation (CFC) rule.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 66 (2013)
Issue (Month): 1 (March)
Pages: 63-95

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Handle: RePEc:ntj:journl:v:66:y:2013:i:1:p:63-95

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Citations

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Cited by:
  1. Hermann Buslei & Martin Simmler, 2012. "The Impact of Introducing an Interest Barrier: Evidence from the German Corporation Tax Reform 2008," Discussion Papers of DIW Berlin 1215, DIW Berlin, German Institute for Economic Research.
  2. Theresa Lohse & Nadine Riedel, 2013. "Do transfer pricing laws limit international income shifting? Evidence from European multinationals," Working Papers, Oxford University Centre for Business Taxation 1307, Oxford University Centre for Business Taxation.
  3. Stefan Bach, 2013. "Has German Business Income Taxation Raised too Little Revenue over the Last Decades?," Discussion Papers of DIW Berlin 1303, DIW Berlin, German Institute for Economic Research.
  4. Jarle Møen & Dirk Schindler & Guttorm Schjelderup & Julia Tropina, 2011. "International Debt Shifting: Do Multinationals Shift Internal or External Debt?," CESifo Working Paper Series, CESifo Group Munich 3519, CESifo Group Munich.
  5. Matthias Stöckl & Hannes Winner, . "Capital Structure and Corporate Taxation. Empirical Evidence from European Panel Data," WIFO Working Papers, WIFO 422, WIFO.
  6. Schanz, Deborah & Feller, Anna, 2014. "Wieso Deutschland (fast) keine BEPS-Bekämpfung braucht," arqus Discussion Papers in Quantitative Tax Research, arqus - Arbeitskreis Quantitative Steuerlehre 171, arqus - Arbeitskreis Quantitative Steuerlehre.
  7. Grace Weishi Gu & Ruud A. de Mooij & Tigran Poghosyan, 2012. "Taxation and Leverage in International Banking," IMF Working Papers, International Monetary Fund 12/281, International Monetary Fund.
  8. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2011. "Capital structure choice and company taxation: A meta-study," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 11-075, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Niels Johannesen, 2011. "Strategic Line Drawing between Debt and Equity," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 2011-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  10. Dirk Schindler & Guttorm Schjelderup, 2013. "Transfer Pricing and Debt Shifting in Multinationals," CESifo Working Paper Series, CESifo Group Munich 4381, CESifo Group Munich.
  11. Johannesen, Niels, 2012. "Optimal fiscal barriers to international economic integration in the presence of tax havens," Journal of Public Economics, Elsevier, Elsevier, vol. 96(3), pages 400-416.
  12. Egger, Peter & Keuschnigg, Christian & Merlo, Valeria & Wamser, Georg, 2011. "Corporate Taxes, Internal Borrowing, and the Lending Capacity within Multinational Firms," Economics Working Paper Series, University of St. Gallen, School of Economics and Political Science 1142, University of St. Gallen, School of Economics and Political Science.
  13. Matthias Stöckl & Hannes Winner, 2013. "Koerperschaftsbesteuerung und Unternehmensverschuldung: Evidenz aus einem Europaeischen Firmenpanel," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 233(2), pages 188-205, March.

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