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

Buettner, Thiess; Wamser, Georg

doi:10.17310/ntj.2013.1.03

Cited by 137 publications

(109 citation statements)

References 38 publications

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“…Using an international dataset provide further evidence for debt reacting to tax di erentials. For more recent evidence on the role of internal debt in pro t shifting and a review of the literature see Buettner and Wamser (2009). 17 This assumption is supported by recent evidence for a one-way Granger causality from profitability to leverage by Bartoloni (2011).…”

Section: 2mentioning

confidence: 84%

Evidence for Profit Shifting with Tax-sensitive Capital Stocks

Mokkas¹

2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper contributes to the literature providing indirect evidence for pro t shifting within multinational companies. In contrast to the previous studies we account for the tax responsiveness of the capital stock and analyse the impact of corporate taxes on both pre-and post-tax pro tability. Evidence from our large panel dataset of European subsidiaries supports the pro t shifting hypothesis. We nd that a 10 percentage point decrease in the tax rate increases post-tax pro tability by up to 1.1 percentage points. Further, our results suggest that nancial pro ts and losses are particularly responsive to taxes, which indicates that a large part of pro t shifting takes places via debt shifting. JEL classi cation: H25, H87 Terms of use: Documents in EconStor may

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Section: 2mentioning

confidence: 84%

Evidence for Profit Shifting with Tax-sensitive Capital Stocks

Mokkas¹

2015

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“…This can be considered an extension of studies like Desai et al (2004), Overesch and Wamser (2010), Wamser (2013), andWamser (2014). In equation 12, DebtRatio is the dependent variable and it denotes loans to total assets by firm i in year t.…”

Section: Estimation Based On the Variation Of Tax Parameters Over Timementioning

confidence: 99%

On the Interdependency of Profit Shifting Channels and the Effectiveness of Anti-Avoidance Legislation

2017

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. The issue of base erosion and profit shifting has been on the international policy agenda for several years now. The aim of this paper is to examine how firms adjust their profit shifting mechanisms in a changing institutional environment. In particular, we test whether firms substitute one profit shifting strategy for another if respective costs change. To this end, we exploit changes in the strictness of transfer pricing regulations and thin capitalization rules over time in a panel of European multinational firms and study a quasi-experimental reform setting in France. We confirm existing evidence that tightening transfer pricing regulations reduces the tax sensitivity of earnings before interest and taxes (EBIT) substantially. Our results show, however, that this reduction includes both a reduction in profit shifting activity via the transfer pricing channel and a substitution with debt shifting. Moreover, firms using debt shifting to begin with rely more heavily on tax optimization of transfer prices when thin capitalization rules are strengthened. If transfer pricing regulations are also strict, the conditional reform effects show that the substitutive response is more pronounced for a subsample of firms with a high share of intangible property (IP). The difference-in-difference approach for the French tax reform illustrates an increase in profit shifting based on transfer prices for treated firms facing new restrictions on debt shifting. Again, the effect is stronger for IP intensive firms.

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“…With regard to internal debt financing, subsidiaries of multinational firms located in high-tax countries tend to borrow from entities located in low-tax countries (Desai, Foley, and Hines, 2004;Huizinga, Laeven and Nicodème, 2008;Buettner and Wamser, 2013). This enables multinationals to save taxes since the taxes avoided through the interest deduction at the high-tax location exceed the taxes on interest income at the low-tax location.…”

Section: Introductionmentioning

confidence: 99%

Anti profit-shifting rules and foreign direct investment

Buettner

Overesch

Wamser

2017

Int Tax Public Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Anti Profit-Shifting Rules and Foreign Direct Investment Abstract This paper explores the effects of tax provisions aimed at restricting multinationals' tax planning on foreign direct investment (FDI). Using a unique dataset which allows us to observe the worldwide activities of a large panel of multinational firms, we test how limitations of interest tax deductibility, so-called thin-capitalization rules, and regulations of transfer pricing by the host country affect investment and employment of foreign subsidiaries. The results indicate that, compared with the unrestricted case, in the presence of a typical thin-capitalization rule, the tax-rate sensitivity of FDI is about twice as large. Moreover, introducing such a rule or making it more tight exerts significant adverse effects on the level of FDI in high-tax countries. Regulations of transfer pricing, however, are not found to exert significant effects on FDI. Terms of use: Documents inJEL-Code: H250, F230.

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

Cited by 137 publications

References 38 publications

Evidence for Profit Shifting with Tax-sensitive Capital Stocks

Evidence for Profit Shifting with Tax-sensitive Capital Stocks

On the Interdependency of Profit Shifting Channels and the Effectiveness of Anti-Avoidance Legislation

Anti profit-shifting rules and foreign direct investment

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