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Profit shifting by EU banks: evidence from country-by-country reporting

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Abstract

We investigate profit shifting by the largest and systemically relevant European multinational banks using new data made available through country-by-country reporting for the financial years 2014-2016. We capture tax incentives for income shifting using a multilateral tax differential between the local tax rate and the tax rates in the other countries where the bank has operations. We find that profits - particularly those recorded in tax havens - are negatively affected by corporate taxation. Moreover, the bulk of income shifting seems to take place among subsidiaries, as foreign-to-foreign tax differences matter significantly more that home-to-foreign differentials. Simulation results suggest that the amount of shifted profits in tax havens is about 38% of true profits. The ratio between shifted and true profits drops to about 7% when selected non havens are considered.

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  • Fatica, Serena & Wildmer, Gregori, 2018. "Profit shifting by EU banks: evidence from country-by-country reporting," Working Papers 2018-04, Joint Research Centre, European Commission.
    • Handle: RePEc:jrs:wpaper:201804
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    Cited by:

    1. Petr Procházka, 2018. "Implementation of EU directives regarding BEPS Action Plan in Czechia and other Central and Eastern European states [Implementace směrnic EU týkajících se Akčního plánu BEPS v Česku a dalších zemíc," Současná Evropa, Prague University of Economics and Business, vol. 2018(2), pages 36-48.
    2. Petr Procházka, 2018. "Implementation of EU directives regarding BEPS Action Plan in Czechia and other Central and Eastern European states [Implementace směrnic EU týkajících se Akčního plánu BEPS v Česku a dalších zemíc," Současná Evropa, Prague University of Economics and Business, vol. 2018(2), pages 36-48.
    3. Dutt, Verena K. & Nicolay, Katharina & Vay, Heiko & Voget, Johannes, 2019. "Can European banks' country-by-country reports reveal profit shifting? An analysis of the information content of EU banks' disclosures," ZEW Discussion Papers 19-042, ZEW - Leibniz Centre for European Economic Research.
    4. Petr Procházka, 2018. "Implementation of EU directives regarding BEPS Action Plan in Czechia and other Central and Eastern European states [Implementace směrnic EU týkajících se Akčního plánu BEPS v Česku a dalších zemíc," Současná Evropa, Prague University of Economics and Business, vol. 2018(2), pages 36-48.
    5. Galstyan, Vahagn & Maqui, Eduardo & McQuade, Peter, 2021. "International debt and special purpose entities: Evidence from Ireland," Journal of International Money and Finance, Elsevier, vol. 115(C).
    6. Petr Janský, 2020. "European banks and tax havens: evidence from country-by-country reporting," Applied Economics, Taylor & Francis Journals, vol. 52(54), pages 5967-5985, November.
    7. Murphy Richard & Janský Petr & Shah Atul, 2019. "BEPS Policy Failure—The Case of EU Country-By-Country Reporting," Nordic Tax Journal, Sciendo, vol. 2019(1), pages 63-86, January.

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    More about this item

    Keywords

    banks; tax havens; regulation; tax avoidance; transparency;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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