Taxation and Corporate Group Structure – Evidence from a Sample of European Multinationals

Abstract

We empirically analyze the influence of tax considerations on the structure of investments of a parent company based in one EU member state that holds subsidiaries in a different member state. We show that group taxation, deductibility of financing expenses, or participation write-downs and additional taxes on intragroup dividends may factor into the parent company’s decision on the structure of investments as tax parameters. We find empirical evidence that a vertical structure with a pure holding interposed is implemented more often if a domestic parent entity is required for the formation of a tax group, the semi-elasticities being 0.568 and -0.343.

Keywords: Corporate Group Structure, Corporate Income Tax, Firm-Level Data, Multinationals

JEL Classification: F23, H25, K34