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

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Author Info
Thiess Buettner () (Ifo Institute and Munich University (LMU))
Georg Wamser (Ifo Institute)

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

Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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