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Profit Shifting by Multinationals: Indirect Evidence from European Micro Data

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  • Dischinger, Matthias

Abstract

We provide indirect empirical evidence of profit shifting behavior by multinational enterprises. This issue is analyzed in an econometric panel study for the years 1995 to 2005 and additionally in a cross-section for 2004 using a large micro database of European subsidiaries of multinationals (AMADEUS) which includes detailed balance sheet items. Our results show a decrease in the unconsolidated pre-tax profits of an affiliated company of approximately 7% if the difference in the statutory corporate tax rate of this affiliate to its parent increases by 10 percentage points. Various robustness checks support our profit shifting evidence. Furthermore, the results suggest an overall shift of profits out of the European Union. In addition, we provide evidence that a higher parent's ownership share of its subsidiary leads to intensified profit shifting behavior.

Suggested Citation

  • Dischinger, Matthias, 2007. "Profit Shifting by Multinationals: Indirect Evidence from European Micro Data," Discussion Papers in Economics 2029, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenec:2029
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    References listed on IDEAS

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    Cited by:

    1. Liberini, Federica, 2014. "Corporate Taxes and the Growth of the Firm," The Warwick Economics Research Paper Series (TWERPS) 1042, University of Warwick, Department of Economics.
    2. Dischinger, Matthias & Riedel, Nadine, 2008. "Corporate Taxes, Profit Shifting and the Location of Intangibles within Multinational Firms," Discussion Papers in Economics 4450, University of Munich, Department of Economics.
    3. Dischinger, Matthias & Riedel, Nadine, 2011. "Corporate taxes and the location of intangible assets within multinational firms," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 691-707, August.
    4. Giovanni Cerulli & Bianca Potì & Raffaele Spallone, 2018. "The impact of fiscal relief on multinationals business R&D investments: a cross-country analysis," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 649-675, August.
    5. Matthias Wrede, 2013. "Multinational Financial Structure and Tax Competition," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(III), pages 381-404, September.
    6. John Creedy & Norman Gemmell, 2011. "Corporation tax asymmetries: effective tax rates and profit shifting," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 422-435, August.
    7. Tomomi Sakurai, 2020. "Profit Shifting by Japanese Multinational Corporations," Discussion papers ron332, Policy Research Institute, Ministry of Finance Japan.
    8. Matthias Wrede, 2009. "Multinational Capital Structure and Tax Competition," MAGKS Papers on Economics 200934, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    9. Brandstetter, Laura, 2014. "Do Corporate Tax Cuts Reduce International Profit Shifting?," Discussion Papers 2014/10, Free University Berlin, School of Business & Economics.
    10. Brandstetter, Laura, 2014. "Do corporate tax cuts reduce international profit shifting," arqus Discussion Papers in Quantitative Tax Research 162, arqus - Arbeitskreis Quantitative Steuerlehre.
    11. Sarah Godar, 2018. "Tax Haven Investors and Corporate Profitability - Evidence of Profit Shifting by German-Based Affiliates of Multinational Firms," Working Papers IES 2018/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2018.

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    More about this item

    Keywords

    corporate taxation; multinational enterprise; tax planning; profit shifting; micro level data; panel econometrics;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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