Trading Offshore: Evidence on Banks' Tax Avoidance

40 Pages Posted: 24 Oct 2017

See all articles by Dominika Langenmayr

Dominika Langenmayr

Catholic University of Eichstaett-Ingolstadt; CESifo (Center for Economic Studies and Ifo Institute); WU Vienna University of Economics and Business

Franz Reiter

Ludwig Maximilian University of Munich (LMU)

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Date Written: September 25, 2017

Abstract

Little is known about how banks shift profits to low-tax countries. Because of their specific business model, banks use profit shifting channels different from those of other firms. We propose a novel and bank-specific method of profit shifting: the strategic relocation of proprietary trading to low-tax jurisdictions. Using regulatory data from the German central bank, we show that a one percentage point lower corporate tax rate increases banks’ fixed-income trading assets by 4.0% and trading derivatives by 9.0%. This increase does not arise from a relocation of real activities (i.e. traders); instead, it stems from the relocation of book profits.

Keywords: profit shifting, multinational banks, corporate taxation, proprietary trading

JEL Classification: H250, G210, F210

Suggested Citation

Langenmayr, Dominika and Langenmayr, Dominika and Reiter, Franz, Trading Offshore: Evidence on Banks' Tax Avoidance (September 25, 2017). CESifo Working Paper Series No. 6664, Available at SSRN: https://ssrn.com/abstract=3057458 or http://dx.doi.org/10.2139/ssrn.3057458

Dominika Langenmayr (Contact Author)

Catholic University of Eichstaett-Ingolstadt ( email )

Auf der Schanz 49
Ingolstadt, D-85049
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1, Building D1, 3rd Floor
Vienna, 1020
Austria

Franz Reiter

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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