Evidence for profit shifting with tax sensitive capital stocks

Simon Loretz and Socrates Mokkas ()
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Socrates Mokkas: Office of the Gas and Electricity Markets

No 1116, Working Papers from Oxford University Centre for Business Taxation

Abstract: This paper contributes to the literature providing indirect evidence for profit shifting within multinational companies. In contrast to the previous studies we account for the tax responsiveness of the capital stock and analyse the impact of corporate taxes on both pre- and post-tax profitability. Evidence from our large panel dataset of European subsidiaries supports the profit shifting hypothesis. We find that a 10 percentage point decrease in the tax rate increases post-tax profitability by up to 1.1 percentage points. Further, our results suggest that financial profits and losses are particularly responsive to taxes, which indicates that a large part of profit shifting takes places via debt shifting.

Keywords: Corporate Taxation; Profit Shifting (search for similar items in EconPapers)
JEL-codes: H25 H87 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Evidence for Profit Shifting with Tax-sensitive Capital Stocks (2015)
Working Paper: Evidence for profit shifting with tax sensitive capital stocks (2013)
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