Intercompany Loans and Profit Shifting - Evidence from Company-Level Data
Ifo Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute); Ludwig-Maximilians University of Munich
University of Tuebingen; ETH Zurich
CESifo Working Paper Series No. 1959
This paper is concerned with tax-planning strategies of multinational corporations. A theoretical analysis discusses the choice of the capital structure in a setting where intercompany loans can be used to shift profits to low-tax countries. Empirical evidence is provided using micro-level panel data of virtually all German multinationals made available by the Bundesbank. This comprehensive dataset allows us to exploit differences in taxing conditions of almost eighty countries during a period of nine years. The empirical results confirm a robust impact of tax-rate differences within the multinational group on the use of intercompany loans, supporting the profit-shifting hypothesis. However, the implied tax-revenue effects are rather small, suggesting that costs related to adjusting the capital structure for profit-shifting purposes are substantial.
Number of Pages in PDF File: 34
Keywords: corporate taxation, multination corporations, tax planning, intercompany loans, tax haven, FDI, micro-level data
JEL Classification: H25, F23, G32working papers series
Date posted: April 18, 2007
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