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Debt shifting in Europe

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  • Raffaele Miniaci

    (Universita di Brescia)

  • Paolo Panteghini

    (Universita di Brescia)

  • Maria Laura Parisi

    (Universita di Brescia)

Abstract

This article aims to analyze the link between subsidiary capital structure and taxation in Europe. First we introduce a trade-off model, which looks at a MNC’s financial strategy and in particular debt shifting from low-tax to high-tax jurisdictions. By letting the MNC choose both leverage and the profit shifting percentage, we depart from the relevant literature which has mainly focused on the latter. Using the AMADEUS dataset we show that: i) in line with the relevant literature, subsidiary leverage increases with its statutory tax rate; ii) contrary to previous work, if a parent company is located in a high-tax country and its subsidiary is making profit, an increase in the parent company’s tax rate has a positive impact on the subsidiary’s leverage.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1121.

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Date of creation: 2011
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Handle: RePEc:btx:wpaper:1121

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Keywords: capital structure; default; debt shifting; multinationals; taxation;

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Cited by:
  1. 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.
  2. Francesco Cohen & Alessandro Fedele & Paolo Panteghini, 2014. "Corporate Taxation and Financial Strategies Under Asymmetric Information," CESifo Working Paper Series 4772, CESifo Group Munich.

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