Avoiding Taxes: Banks' Use of Internal Debt

Franz Reiter, Dominika Langenmayr and Svea Holtmann

No 196, Working Papers from Bavarian Graduate Program in Economics (BGPE)

Abstract: This paper investigates how multinational banks use internal debt to shift profits to low-taxed afiliates. 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)
Pages: 37 pages
Date: 2020-05
New Economics Papers: this item is included in nep-pbe
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https://bgpe.cms.rrze.uni-erlangen.de/files/2023/0 ... of-Internal-Debt.pdf First version, 2020 (application/pdf)

Related works:
Journal Article: Avoiding taxes: banks’ use of internal debt (2021)
Working Paper: Avoiding Taxes: Banks' Use of Internal Debt (2020)
Working Paper: Avoiding taxes: banks' use of internal debt (2020)
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