Trading Offshore: Evidence on Banks' Tax Avoidance
Dominika Langenmayr () and
No 6664, CESifo Working Paper Series from CESifo Group Munich
Little is known about how banks shift profits to low-tax countries. Because of their specific business model, banks use profit shifting channels different from those of other firms. We propose a novel and bank-specific method of profit shifting: the strategic relocation of proprietary trading to low-tax jurisdictions. Using regulatory data from the German central bank, we show that a one percentage point lower corporate tax rate increases banks’ fixed-income trading assets by 4.0% and trading derivatives by 9.0%. This increase does not arise from a relocation of real activities (i.e. traders); instead, it stems from the relocation of book profits.
Keywords: profit shifting; multinational banks; corporate taxation; proprietary trading (search for similar items in EconPapers)
JEL-codes: H25 G21 F21 (search for similar items in EconPapers)
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