Profit Shifting by Multinationals and the Ownership Share: Evidence from European Micro Data

Arbeitspapier

We provide indirect empirical evidence of profit shifting behavior by multinational enterprises (MNEs) employing a panel study for the years 1995 to 2005, while controlling for unobservable fixed firm effects. We use a large micro database of European MNEs which includes detailed accounting and ownership information. Our results show a strongly negative relationship between an affiliated company's statutory corporate tax rate difference to its foreign parent firm and the affiliate's gross profits. Quantitatively, a 10 percentage points decrease in the tax rate of the affiliate (relative to the parent) increases its pre-tax profitability by 7%, other things being equal. Various robustness checks support this profit shifting inference. Furthermore, we provide evidence that a higher parent's ownership share of its subsidiary leads to intensified shifting activities between these two affiliates.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Munich Discussion Paper ; No. 2008-17

Classification and Topics

• Classification: Wirtschaft ; Business Taxes and Subsidies including sales and value-added (VAT) ; Tax Evasion and Avoidance ; Multinational Firms; International Business ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
• Subject: corporate taxation ; multinational enterprise ; profit shifting ; share ownership ratio ; micro level data ; Gewinnverlagerung ; Multinationales Unternehmen ; Ausländische Tochtergesellschaft ; Eigentümerstruktur ; Nationalkultur ; Schätzung ; Europa

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dischinger, Matthias
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
• (where): München
• (when): 2008

Further information

• DOI: doi:10.5282/ubm/epub.5661
• Handle: http://hdl.handle.net/10419/104255
• URN: urn:nbn:de:bvb:19-epub-5661-6
• Last update: 10.03.2025, 11:43 AM CET