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Multinationals and Income Shifting by Debt

Author

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  • Dirk Schindler
  • Guttorm Schjelderup

Abstract

Existing literature studies debt shifting and transfer pricing separately. In practice, however, the choice of debt-to-asset ratios in affiliates and the interest rate on internal debt are interrelated management decisions that are also mutually affected by government regulation. Therefore, this paper models these strategies as simultaneous decisions made by the management. We find that the tax sensitivity of the corporate tax base depends on whether debt shifting and transfer pricing are cost complements or substitutes. A second result is that stricter regulation of debt shifting and transfer pricing may have the effect of fostering such activities.

Suggested Citation

  • Dirk Schindler & Guttorm Schjelderup, 2016. "Multinationals and Income Shifting by Debt," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(3), pages 263-286, September.
  • Handle: RePEc:taf:ijecbs:v:23:y:2016:i:3:p:263-286
    DOI: 10.1080/13571516.2015.1129095
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    References listed on IDEAS

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    Cited by:

    1. Møen, Jarle & Schindler, Dirk & Schjelderup, Guttorm & Bakke, Julia Tropina, 2019. "International Debt Shifting: The Value Maximizing Mix of Internal and External Debt," Discussion Papers 2019/1, Norwegian School of Economics, Department of Business and Management Science.
    2. Harendt, Christoph, 2018. "Tax influence on financial structures of M&As," ZEW Discussion Papers 18-004, ZEW - Leibniz Centre for European Economic Research.
    3. Harendt, Christoph, 2018. "Tax Influence on Financial Structures of M&As," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181552, Verein für Socialpolitik / German Economic Association.
    4. von Hagen, Dominik & Harendt, Christoph, 2017. "Impact of controlled foreign corporation rules on post-acquisition investment and profit shifting in targets," ZEW Discussion Papers 17-062, ZEW - Leibniz Centre for European Economic Research.

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