Profit Shifting in the EU: Evidence from Germany

Alfons J. Weichenrieder and Alfons Weichenrieder
Authors registered in the RePEc Author Service: Alfons J. Weichenrieder

No 2043, CESifo Working Paper Series from CESifo

Abstract: The paper considers profit shifting behavior using data on German inbound and outbound FDI. It finds an empirical correlation between the home country tax rate of a parent and the net of tax profitability of its German affiliate that is consistent with profit shifting behavior. For profitable affiliates that are directly owned by a foreign investor the evidence suggests that a 10 percentage point increase in the parent's home country tax rate leads to roughly half a percentage point increase in the profitability of the German affiliate. On the outbound side of German FDI, the data provides some evidence that tax rate changes in the host country lead to a stronger change in after-tax profitability for affiliates that are wholly owned, which may reflect the larger flexibility of these firms in carrying out tax minimizing behavior without interference of minority owners.

Keywords: foreign direct investment; profit shifting; tax avoidance; multinational enterprise (search for similar items in EconPapers)
JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Related works:
Journal Article: Profit shifting in the EU: evidence from Germany (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2043

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