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Internal Debt and Multinationals' Profit Shifting - Empirical Evidence from Firm-Level Panel Data

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  • Thiess Buettner

    ()
    (Ifo Institute and Munich University (LMU))

  • Georg Wamser

    (Ifo Institute)

Abstract

This paper is concerned with the shifting of taxable profits by means of borrowing and lending between affliates of multinational corporations. Empirical evidence is provided using microlevel panel data of virtually all German multinationals made available by the German Central Bank (Bundesbank). This comprehensive dataset allows us to exploit differences in taxing conditions in more than 150 countries over a period of ten years. The empirical results confirm a robust impact of tax-rate differences within the multinational group on the use of internal debt, supporting the view that internal debt is used to shift profits to low-tax countries. However, the tax effects are rather small. Given that the empirical literature finds profit shifting to be substantial, our estimates suggest that other strategies to shift income to low-tax countries are relatively more important.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 0918.

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Date of creation: 2009
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Handle: RePEc:btx:wpaper:0918

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Keywords: Capital Structure; Multinational Corporations; Internal Debt; Corporate Taxation; Tax Planning; Profit Shifting;

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Citations

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Cited by:
  1. Johannesen, Niels, 2012. "Optimal fiscal barriers to international economic integration in the presence of tax havens," Journal of Public Economics, Elsevier, vol. 96(3), pages 400-416.
  2. Schindler, Dirk & Møen, Jarle & Schjelderup, Guttorm & Tropina, Julia, 2013. "International Debt Shifting: Do Multinationals Shift Internal or External Debt?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79749, Verein für Socialpolitik / German Economic Association.
  3. Egger, Peter & Keuschnigg, Christian & Merlo, Valeria & Wamser, Georg, 2011. "Corporate Taxes, Internal Borrowing, and the Lending Capacity within Multinational Firms," Economics Working Paper Series 1142, University of St. Gallen, School of Economics and Political Science.
  4. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.
  5. Theresa Lohse & Nadine Riedel, 2013. "Do transfer pricing laws limit international income shifting? Evidence from European multinationals," Working Papers 1307, Oxford University Centre for Business Taxation.
  6. Schindler, Dirk & Schjelderup, Guttorm, 2014. "Transfer Pricing and Debt Shifting in Multinationals," Discussion Papers 2014/22, Department of Business and Management Science, Norwegian School of Economics.
  7. 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.
  8. 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, vol. 233(2), pages 188-205, March.
  9. Matthias Stöckl & Hannes Winner, . "Capital Structure and Corporate Taxation. Empirical Evidence from European Panel Data," WIFO Working Papers 422, WIFO.
  10. Neils Johannesen, 2012. "Strategic Line Drawing between Debt and Equity," Working Papers 1203, Oxford University Centre for Business Taxation.
  11. Grace Weishi Gu & Ruud A. de Mooij & Tigran Poghosyan, 2012. "Taxation and Leverage in International Banking," IMF Working Papers 12/281, International Monetary Fund.
  12. 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.

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