Trading offshore: evidence on banks’ tax avoidance

Dominika Langenmayr and Franz Reiter

Scandinavian Journal of Economics, 2022, vol. 124, issue 3, 797-837

Abstract: Little is known about how banks shift profits to low‐tax countries. Because of their specific business model, banks use other profit‐shifting channels than non‐financial 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 1 percentage point lower corporate tax rate increases banks’ fixed‐income trading assets by 3–4 percent and trading derivatives by 9 percent. Suggestively, this increase does not arise from a relocation of real activities (i.e., traders); instead, it stems from the relocation of book profits.

Date: 2022
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https://doi.org/10.1111/sjoe.12507

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Working Paper: Trading Offshore: Evidence on Banks' Tax Avoidance (2017)
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