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Internal Debt and Multinational Profit Shifting: Empirical Evidence From Firm-Level Panel Data

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  • Buettner, Thiess
  • Wamser, Georg

Abstract

This paper explores the role of internal debt as a vehicle for shifting profits to lowtax countries. Using data on German multinationals, it exploits differences in taxes in more than 100 countries over 10 years. The results confirm that internal debt is used more by multinationals with affiliates in low-tax countries and increases with the spread between the host-country tax rate and the lowest tax rate among all affi liates. However, tax effects are small, suggesting that profit shifting by means of internal debt is rather unimportant for German firms. Further testing indicates that this is partly due to the German controlled foreign corporation (CFC) rule.

Suggested Citation

  • Buettner, Thiess & Wamser, Georg, 2013. "Internal Debt and Multinational Profit Shifting: Empirical Evidence From Firm-Level Panel Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 63-95, March.
  • Handle: RePEc:ntj:journl:v:66:y:2013:i:1:p:63-95
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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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