Avoiding taxes: banks' use of internal debt

Franz Reiter, Dominika Langenmayr and Svea Holtmann

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: This paper investigates how multinational banks use internal debt to shift profits to low-taxed affiliates. Using regulatory data on multinational banks headquartered in Germany, we show that banks use this tax avoidance channel more aggressively than non-financial multinationals do. We find that a ten percentage points higher corporate tax rate increases the internal net debt ratio by 5.7 percentage points, corresponding to a 20% increase at the mean. Our study also takes into account the existence of conduit entities, which simply pass through financial flows. If conduit entities are systematically located in low-tax countries, previous studies may have underestimated the extent of debt shifting.

Date: 2020
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Published in International Tax and Public Finance 3 28(2020): pp. 717-745

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Related works:
Journal Article: Avoiding taxes: banks’ use of internal debt (2021)
Working Paper: Avoiding Taxes: Banks' Use of Internal Debt (2020)
Working Paper: Avoiding Taxes: Banks' Use of Internal Debt (2020)
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