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Profit shifting and tax response of multinational banks

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  • Merz, Julia
  • Overesch, Michael

Abstract

This paper analyzes multinational banks’ response to taxation. For the empirical analysis we use firm-level bank data from the Bankscope database. We find significant tax effects on reported profits of bank subsidiaries. The magnitude for the tax response of reported profits doubles the effects found in previous studies for non-financial MNCs. Additional analysis reveals that the response to tax incentives differs across business types. The tax elasticity of revenues generated by interest-bearing activities is less responsive compared to other activities. Results also reveal significant tax effects on loan loss provisions.

Suggested Citation

  • Merz, Julia & Overesch, Michael, 2016. "Profit shifting and tax response of multinational banks," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 57-68.
    • Handle: RePEc:eee:jbfina:v:68:y:2016:i:c:p:57-68
    DOI: 10.1016/j.jbankfin.2016.03.015
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    More about this item

    Keywords

    Financial sector taxation; Multinational bank; Corporate taxation; Empirical analysis;
    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
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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