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The Tax-Efficient Use of Debt in Multinational Corporations

Jarle Møen (), Dirk Schindler (), Guttorm Schjelderup () and Georg Wamser

No 7133, CESifo Working Paper Series from CESifo Group Munich

Abstract: Some multinationals use the parent company as a lender to the group, whereas others set up an internal bank in a low tax jurisdiction. This paper discusses the link between capital structure choices and tax planning motives in multinational groups. We model the trade-off between the use of external debt, parental debt and an internal bank. We test the theory model using data on the universe of German multinationals. The empirical analysis largely supports our model in that: (i) smaller firms often rely on parental debt financing; (ii) larger multinationals are more likely to use internal banks; (iii) parental debt and external debt are substitutes and the mix depends on the relative cost of raising capital through the parent and the affiliates; (iv) both parental debt and external debt increase when the tax rate increases, all else equal.

Keywords: corporate taxation; multinationals; capital structure; international debt-shifting; parental debt (search for similar items in EconPapers)
JEL-codes: H25 G32 F23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
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