The Role of Headquarters Firms in Multinational Profit Shifting Strategies

Dischinger, Matthias and Riedel, Nadine (3. February 2010): The Role of Headquarters Firms in Multinational Profit Shifting Strategies. Discussion Papers in Economics 2010-12

Abstract

This paper stresses the special role of multinational headquarters in corporate profit shifting strategies. Using a large panel of European firms, we show that multinational enterprises (MNEs) are reluctant to shift profits away from their headquarters even if these are located in high-tax countries. Thus, shifting activities in response to corporate tax rate differentials between parents and subsidiaries are found to be significantly larger if the parent observes a lower corporate tax rate than its subsidiary and profit is thus shifted towards the headquarters firm. This result is in line with recent empirical evidence suggesting that MNEs bias the location of profits and highly profitable assets in favor of the headquarters location (for agency cost reasons among others).

• Item Type: Paper
• Form of publication: Submitted Version
• Keywords: multinational firm, profit shifting, headquarters location
• Faculties: Economics; Economics > Munich Discussion Papers in Economics; Economics > Munich Discussion Papers in Economics > Economic Policy; Economics > Munich Discussion Papers in Economics > Public Finance; Economics > Chairs > Seminar for Economic Policy
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: H25, H26, C33
• Language: English

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