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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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    References listed on IDEAS

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    1. repec:mup:actaun:actaun_2018066030729 is not listed on IDEAS
    2. Dutt, Verena Katharina & Ludwig, Christopher Alexander & Nicolay, Katharina & Vay, Heiko & Voget, Johannes, 2018. "Increasing tax transparency: Investor reactions to the country-by-country reporting requirement for EU financial institutions," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181537, Verein für Socialpolitik / German Economic Association.
    3. repec:men:journl:v:3:y:2017:i:1:p:5-12 is not listed on IDEAS
    4. Aneta Hryckiewicz & Piotr Mielus & Karolina Skorulska & Malgorzata Snarska, 2018. "Does a bank levy increase frictions on the interbank market?," Working Papers 2018-033, Warsaw School of Economics, Collegium of Economic Analysis.
    5. Reiter, Franz, 2017. "Avoiding Taxes: Banks' Use of Internal Debt," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168115, Verein für Socialpolitik / German Economic Association.
    6. 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 (Ispra site).
    7. 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.
    8. Bertay,Ata Can & Demirguc-Kunt,Asli & Huizinga,Harry P., 2017. "Are international banks different? evidence on bank performance and strategy," Policy Research Working Paper Series 8286, The World Bank.
    9. Gawehn, Vanessa & Müller, Jens, 2019. "Tax avoidance - are banks any different?," arqus Discussion Papers in Quantitative Tax Research 239, arqus - Arbeitskreis Quantitative Steuerlehre.
    10. Dominika Langenmayr & Franz Reiter, 2017. "Trading Offshore: Evidence on Banks' Tax Avoidance," CESifo Working Paper Series 6664, CESifo Group Munich.
    11. Fatica, Serena & Heynderickx, Wouter & Pagano, Andrea, 2018. "Banks, debt and risk: assessing the spillovers of corporate taxes," Working Papers 2018-09, Joint Research Centre, European Commission (Ispra site).

    More about this item

    Keywords

    Financial sector taxation; Multinational bank; Corporate taxation; Empirical analysis;

    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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