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Avoiding taxes: banks’ use of internal debt

Franz Reiter (), Dominika Langenmayr () and Svea Holtmann ()
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Franz Reiter: University of Munich
Svea Holtmann: KU Eichstätt-Ingolstadt

International Tax and Public Finance, 2021, vol. 28, issue 3, No 9, 717-745

Abstract: Abstract This paper investigates how multinational banks use internal debt to shift profits to low-taxed affiliates. Using regulatory data on multinational banks headquartered in Germany, we show that banks use this tax avoidance channel more aggressively than non-financial multinationals do. We find that a ten percentage points higher corporate tax rate increases the internal net debt ratio by 5.7 percentage points, corresponding to a 20% increase at the mean. Our study also takes into account the existence of conduit entities, which simply pass through financial flows. If conduit entities are systematically located in low-tax countries, previous studies may have underestimated the extent of debt shifting.

Keywords: Profit shifting; Internal debt; Multinational banks; Taxation (search for similar items in EconPapers)
JEL-codes: F23 G21 H25 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Avoiding Taxes: Banks' Use of Internal Debt (2020) Downloads
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DOI: 10.1007/s10797-020-09625-2

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