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Debt shifting in Europe

Author

Listed:
  • Raffaele Miniaci

    (Universita di Brescia)

  • Paolo Panteghini

    (Universita di Brescia)

  • Maria Laura Parisi

    (Universita di Brescia)

Abstract

This article aims to analyze the link between subsidiary capital structure and taxation in Europe. First we introduce a trade-off model, which looks at a MNC’s financial strategy and in particular debt shifting from low-tax to high-tax jurisdictions. By letting the MNC choose both leverage and the profit shifting percentage, we depart from the relevant literature which has mainly focused on the latter. Using the AMADEUS dataset we show that: i) in line with the relevant literature, subsidiary leverage increases with its statutory tax rate; ii) contrary to previous work, if a parent company is located in a high-tax country and its subsidiary is making profit, an increase in the parent company’s tax rate has a positive impact on the subsidiary’s leverage.

Suggested Citation

  • Raffaele Miniaci & Paolo Panteghini & Maria Laura Parisi, 2011. "Debt shifting in Europe," Working Papers 1121, Oxford University Centre for Business Taxation.
  • Handle: RePEc:btx:wpaper:1121
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    References listed on IDEAS

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    Cited by:

    1. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.
    2. Francesco Cohen & Alessandro Fedele & Paolo M. Panteghini, 2016. "Corporate taxation and financial strategies under asymmetric information," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(1), pages 9-34, April.

    More about this item

    Keywords

    capital structure; default; debt shifting; multinationals; taxation;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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