Internal Debt and Multinationals' Profit Shifting - Empirical Evidence from Firm-Level Panel Data

Thiess Buettner () and Georg Wamser

No 918, Working Papers from Oxford University Centre for Business Taxation

Abstract: This paper is concerned with the shifting of taxable profits by means of borrowing and lending between affliates of multinational corporations. Empirical evidence is provided using microlevel panel data of virtually all German multinationals made available by the German Central Bank (Bundesbank). This comprehensive dataset allows us to exploit differences in taxing conditions in more than 150 countries over a period of ten years. The empirical results confirm a robust impact of tax-rate differences within the multinational group on the use of internal debt, supporting the view that internal debt is used to shift profits to low-tax countries. However, the tax effects are rather small. Given that the empirical literature finds profit shifting to be substantial, our estimates suggest that other strategies to shift income to low-tax countries are relatively more important.

Keywords: Capital Structure; Multinational Corporations; Internal Debt; Corporate Taxation; Tax Planning; Profit Shifting (search for similar items in EconPapers)
JEL-codes: H25 G32 F23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-eff
Date: 2009
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Persistent link: http://EconPapers.repec.org/RePEc:btx:wpaper:0918

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