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Trading Offshore: Evidence on Banks' Tax Avoidance

Listed author(s):
  • Dominika Langenmayr
  • Franz Reiter
Registered author(s):

    Little is known about how banks shift profits to low-tax countries. Because of their specific business model, banks use profit shifting channels different from those of other firms. We propose a novel and bank-specific method of profit shifting: the strategic relocation of proprietary trading to low-tax jurisdictions. Using regulatory data from the German central bank, we show that a one percentage point lower corporate tax rate increases banks’ fixed-income trading assets by 4.0% and trading derivatives by 9.0%. This increase does not arise from a relocation of real activities (i.e. traders); instead, it stems from the relocation of book profits.

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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp6664.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 6664.

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    Date of creation: 2017
    Handle: RePEc:ces:ceswps:_6664
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