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Reiter, Franz; Langenmayr, Dominika und Holtmann, Svea (2020): Avoiding taxes: banks' use of internal debt. In: International Tax and Public Finance, Bd. 28, Nr. 3: S. 717-745

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Abstract

This paper investigates how multinational banks use internal debt to shift profits to low-taxed affiliates. Using regulatory data on multinational banks headquartered in Germany, we show that banks use this tax avoidance channel more aggressively than non-financial multinationals do. We find that a ten percentage points higher corporate tax rate increases the internal net debt ratio by 5.7 percentage points, corresponding to a 20% increase at the mean. Our study also takes into account the existence of conduit entities, which simply pass through financial flows. If conduit entities are systematically located in low-tax countries, previous studies may have underestimated the extent of debt shifting.

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