Internal Debt and Multinational Profit Shifting: Empirical Evidence from Firm-level Panel Data
Thiess Buettner, and Georg Wamser
66 National Tax Journal 63-95 (March 2013)
This paper explores the role of internal debt as a vehicle for shifting profits to lowtax countries. Using data on German multinationals, it exploits differences in taxes in more than 100 countries over 10 years. The results confirm that internal debt is used more by multinationals with affiliates in low-tax countries and increases with the spread between the host-country tax rate and the lowest tax rate among all affi liates. However, tax effects are small, suggesting that profit shifting by means of internal debt is rather unimportant for German firms. Further testing indicates that this is partly due to the German controlled foreign corporation (CFC) rule.