Profit shifting behaviour between sisters companies: the case of Czech Republic

Danuše Nerudová, Veronika Solilová, Marian Dobranschi and Marek Litzman

International Journal of Trade and Global Markets, 2019, vol. 12, issue 3/4, 300-310

Abstract: The aim of this paper is to research the profit shifting behaviour within the same multinational group of companies. We investigate the sensitivity of pre-tax profit to tax differences between Czech subsidiaries and their sister companies placed in other European Union countries. The profit shifting behaviour is indirectly estimated by adopting Hines-Rice method. The objective of this research is to determine whether the reported pre-tax income is sensitive to the corporate income tax (CIT) differences. We expect an inversely related reaction of profit before taxation to tax differential. The degree of sensitivity should depend on the particular tax advantageous position of the Czech Republic relative to the other EU countries high corporate tax rates.

Keywords: profit shifting; tax differential; semi-elasticity; statutory CIT rate; instrumental variables; sister companies; Czech Republic. (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijtrgm:v:12:y:2019:i:3/4:p:300-310

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