Debt shifting in Europe

Raffaele Miniaci, Maria Laura Parisi and Paolo Panteghini

International Tax and Public Finance, 2014, vol. 21, issue 3, 397-435

Abstract: This article aims to analyze the link between subsidiary capital structure and taxation in Europe. First we have introduced a trade-off model, which looks at a MNC’s financial strategy and in particular debt shifting from low-tax to high-tax jurisdictions. By letting the MNC choose both leverage and the debt shifting percentage, we depart from the relevant literature which has mainly focused on the latter. Using the AMADEUS dataset we show that: (i) in line with the relevant literature, subsidiary leverage increases with its tax rate; (ii) contrary to previous work, the parent company tax rate does not have a negative effect on subsidiary leverage. More specifically, its effect is estimated to be nil when statutory tax rates are used. When however, effective marginal tax rates (EMTRs), accounting for cross-border effects, are used, the impact of parent company taxation on subsidiary leverage is positive. Copyright Springer Science+Business Media New York 2014

Keywords: Capital structure; Default; Debt shifting; Multinationals; Taxation; G31; H25; H32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10797-012-9266-4 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Debt shifting in Europe (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:21:y:2014:i:3:p:397-435

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-012-9266-4

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().