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Corporate Taxes, Profit Shifting and the Location of Intangibles within Multinational Firms

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Author Info
Dischinger, Matthias
Riedel, Nadine
Abstract

Intangible assets are one major source of profit shifting opportunities due to a highly intransparent transfer pricing process. Our paper argues that multinational enterprises (MNEs) optimize their profit shifting strategy by locating shifting–relevant intangible property at affiliates with a low statutory corporate tax rate. Using panel data for European MNEs and controlling for unobserved time–constant heterogeneity between affiliates, we find that the lower a subsidiary’s tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment. This effect is statistically and economically significant, even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern.

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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 4450.

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Date of creation: Jun 2008
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Handle: RePEc:lmu:muenec:4450

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Related research
Keywords: corporate taxation; multinational enterprise; profit shifting; intangible assets; micro level data;

Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data

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  1. Dischinger, Matthias & Riedel, Nadine, 2008. "Corporate Taxes and the Location of Intangible Assets Within Multinational Firms," Discussion Papers in Economics 5294, University of Munich, Department of Economics. [Downloadable!]
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