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International Debt Shifting: Do Multinationals Shift Internal or External Debt?

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Author Info

  • Jarle M�en

    ()
    (Department of Finance and Management Science, Norwegian School of Economics, 5045 Bergen, Norway)

  • Dirk Schindler

    ()
    (Department of Economics, University of Konstanz, Germany)

  • Guttorm Schjelderup

    ()
    (Department of Finance and Management Science, Norwegian School of Economics, 5045 Bergen, Norway)

  • Julia Tropina

    ()
    (Department of Economics, Norwegian School of Economics, 5045 Bergen, Norway)

Abstract

We examine the capital structures of multinational companies. Multinational companies can exploit the tax advantage of debt more aggressively than national companies by shifting debt from affiliates in low-tax countries to affiliates in high-tax countries. Previous papers have omitted either internal debt or external debt from the analysis. We are the first to model the companies’ choice between internal and external debt shifting, and show that it is optimal to use both types of debt in order to save taxes. Using a large panel of German multinationals, we find strong empirical support for our model. The estimated coefficients suggest that internal and external debt shifting are of about equal relevance.

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Bibliographic Info

Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-40.

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Length: 49 pages
Date of creation: 07 Oct 2011
Date of revision:
Handle: RePEc:knz:dpteco:1140

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Related research

Keywords: Corporate taxation; multinationals; capital structure; international debt-shifting; tax avoidance;

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References

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Citations

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Cited by:
  1. 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.
  2. 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.
  3. Scheuering, Uwe, 2013. "M&A and the Tax Benefits of Debt Financing," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79817, Verein für Socialpolitik / German Economic Association.

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