Profit Shifting and Tax Response of Multinational Banks

30 Pages Posted: 14 Aug 2014

See all articles by Julia Merz

Julia Merz

University of Cologne

Michael Overesch

Universität zu Köln

Date Written: August 13, 2014

Abstract

This paper analyzes multinational banks’ response to taxation. For the empirical analysis we use firm-level bank data from the Bankscope database. We find significant tax effects on reported profits of bank subsidiaries. The magnitude for the tax response of reported profits doubles the effects found in previous studies for non-financial MNEs. The response to tax incentives is significantly smaller in the aftermath of the financial crisis in 2008. Additional analysis reveals that in particular trading gains are highly tax responsive. Results also reveal significant tax effects on loan loss provisions and debt financing.

Keywords: Financial Sector Taxation, Multinational Bank, Corporate Taxation, Empirical Analysis

JEL Classification: G21, H25, H26

Suggested Citation

Merz, Julia and Overesch, Michael, Profit Shifting and Tax Response of Multinational Banks (August 13, 2014). Available at SSRN: https://ssrn.com/abstract=2479818 or http://dx.doi.org/10.2139/ssrn.2479818

Julia Merz

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Michael Overesch (Contact Author)

Universität zu Köln ( email )

Albertus-Magnus-Platz
WiSo-Gebäude
Cologne, 50923
Germany
0221/470-5605 (Phone)

HOME PAGE: http://www.steuer.uni-koeln.de/

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