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The tax-efficient use of debt in multinational corporations

Stefan Goldbach (), Jarle Møen, Dirk Schindler, Guttorm Schjelderup and Georg Wamser

Journal of Corporate Finance, 2021, vol. 71, issue C

Abstract: Affiliates of multinationals borrow a considerable amount from their parent company, even when the parent is located in a high-tax country. This is at odds with standard theories of a tax-efficient capital structure. We set up a model that analyzes the functioning of the internal capital market and investigates the trade-off between tax savings and capital market frictions within the group. We test the model on data of the universe of German multinationals. The empirical analysis largely supports our model in that: (i) smaller multinationals often rely on parental debt financing; (ii) larger multinationals are more likely to use internal banks; (iii) parental debt and external debt are substitutes and the mix depends on the relative cost of raising capital through the parent and the affiliates; (iv) local and within-group tax incentives play an important role in determining all three types of debt.

Keywords: Corporate taxation; Multinationals; Capital structure; International debt shifting; Parental debt (search for similar items in EconPapers)
JEL-codes: F23 G32 H25 (search for similar items in EconPapers)
Date: 2021
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Working Paper: The Tax-Efficient Use of Debt in Multinational Corporations (2018) Downloads
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DOI: 10.1016/j.jcorpfin.2021.102119

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