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Profit shifting by EU banks: evidence from country-by-country reporting

Serena Fatica () and Wildmer Daniel Gregori

No 2018-04, Working Papers from Joint Research Centre, European Commission (Ispra site)

Abstract: We investigate profit shifting by the largest and systemically relevant European multinational banks using new data made available through country-by-country reporting for the financial years 2014-2016. We capture tax incentives for income shifting using a multilateral tax differential between the local tax rate and the tax rates in the other countries where the bank has operations. We find that profits - particularly those recorded in tax havens - are negatively affected by corporate taxation. Moreover, the bulk of income shifting seems to take place among subsidiaries, as foreign-to-foreign tax differences matter significantly more that home-to-foreign differentials. Simulation results suggest that the amount of shifted profits in tax havens is about 38% of true profits. The ratio between shifted and true profits drops to about 7% when selected non havens are considered.

Keywords: banks; tax havens; regulation; tax avoidance; transparency (search for similar items in EconPapers)
JEL-codes: G21 G28 H26 H87 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-eec
Date: 2018-06
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Published by Publications office of the European Union, 2018

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Persistent link: https://EconPapers.repec.org/RePEc:jrs:wpaper:201804

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