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

Dischinger, Matthias (August 2008): Profit Shifting by Multinationals and the Ownership Share: Evidence from European Micro Data. Discussion Papers in Economics 2008-17

Abstract

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.

• Item Type: Paper (Discussion Paper)
• Keywords: corporate taxation, multinational enterprise, profit shifting, share ownership ratio, micro level data
• Subjects: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Public Finance
• Dewey Classification: 300 Social sciences; 300 Social sciences > 330 Wirtschaft
• Journal of Economic Literature classification: H25, H26, F23, C33
• Language: English

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