Acta Univ. Agric. Silvic. Mendelianae Brun. 2018, 66(3), 729-736 | DOI: 10.11118/actaun201866030729

Profit Shifting and the Tax Response of Multinational Banks in Eastern Europe

Daniel Anarfi, Danuše Nerudová
Department of Accounting and Taxation, Faculty of Economics, Mendel University in Brno, Zemědělská 1, 613 00 Brno, Czech Republic

The aim of the paper is to measure the amount of profit shifting within the banking sector in Eastern European countries. The paper uses firm-level bank data from the Bankscope database of multinational subsidiary banks operating in Eastern Europe for a period of 10 years (2006-2015). An empirical analysis is performed on the panel data to identify the profit-shifting activities of these banks. Focusing on the banking sector of Eastern European countries, which are a microcosm of the European Union, substantial evidence of profit shifting is found and confirms that banks have enhanced tax-planning opportunities similar to firms from different jurisdictions. The paper also seeks to contribute to recommendations on how fair and sustainable taxation and social policy reforms can increase the economic stability of the EU member states.

Keywords: profit shifting, multinationals, subsidiary banks, Eastern Europe

Published: June 28, 2018  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Anarfi, D., & Nerudová, D. (2018). Profit Shifting and the Tax Response of Multinational Banks in Eastern Europe. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 66(3), 729-736. doi: 10.11118/actaun201866030729
Share...
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. BAGWELL, K. and STAIGER, R. W. 2012. Profit shifting and trade agreements in imperfectly competitive markets. International Economic Review, 53(4): 1067-1104. DOI: 10.1111/j.1468-2354.2012.00712.x Go to original source...
    2. BERNARD, A. B., JENSEN, J. B. and SCHOTT, P. K. 2006. Transfer pricing by US-based multinational firms. No. w12493. National Bureau of Economic Research. Go to original source...
    3. BUETTNER, T. and WAMSER, G. 2013. Internal debt and multinational profit shifting: Empirical evidence from firm-level panel data. National Tax Journal, 66(1): 63-95. DOI: 10.17310/ntj.2013.1.03 Go to original source...
    4. CLAUSING, K. A. 2003. Tax-motivated transfer pricing and US intrafirm trade prices. Journal of Public Economics, 87(9): 2207-2223. DOI: 10.1016/S0047-2727(02)00015-4 Go to original source...
    5. CLAUSING, K. A. 2016. The effect of profit shifting on the†corporate tax base in the United States and Beyond. National Tax Journal, 69(4): 905-934 DOI: 10.17310/ntj.2016.4.09 Go to original source...
    6. CRIVELLI, E., DE MOOIJ, R. and KEEN, M. 2016. Base erosion, profit shifting and developing countries. FinanzArchiv: Public Finance Analysis, 72(3): 268-301. DOI: 10.1628/001522116X14646834385460 Go to original source...
    7. DEMIRGÜC-KUNT, A. and HUIZINGA, H. P. 2001. The taxation of domestic and foreign debt. Journal of Public Economics, 79(3): 429-453. DOI: 10.1016/S0047-2727(00)00071-2 Go to original source...
    8. DESAI, M. A., FOLEY, C. F. and HINES, J. R. 2004. A multinational perspective on capital structure choice and internal capital markets. Journal of Finance, 59(6): 2451-2487. DOI: 10.1111/j.1540-6261.2004.00706.x Go to original source...
    9. DHARMAPALA, D. 2014. What Do We Know About Base Erosion and Profit Shifting. A review of the empirical literature. Coase-Sandor Institute for Law & Economics Working Paper No. 702. Chicago: Coase-Sandor Institute for Law and Economics. Go to original source...
    10. DISCHINGER, M. P. 2010. Profit shifting by multinationals: Evidence from European micro panel data. Munich Economics Discussion Paper. Available at: http://www.ecpol.econ.uni-muenchen.de/downloads/publis/dischinger_publis/dischinger_ps_new1.pdf [Accessed: 2018, May 14].
    11. DISCHINGER, M., KNOLL, B. and RIEDEL, N. 2014. The role of headquarters in multinational profit shifting strategies. International Tax and Public Finance, 21(2): 248-271. DOI: 10.1007/s10797-012-9265-5 Go to original source...
    12. FINKE, K. 2013. Tax avoidance of German multinationals and implications for tax revenue: Evidence from a propensity score matching approach. Available at: http://sbs.ox.ac.uk/sites/default/files/Business_Taxation/Events/conferences/doctoral_meeting/2013/finke.pdf [Accessed: 2018, May 14].
    13. GROPP, R. and HEIDER, F. 2010. The determinants of bank capital structure. Review of Finance, 14(4): 587-622. DOI: 10.1093/rof/rfp030 Go to original source...
    14. HAUFLER, A. and SCHJELDERUP, G. 2000. Corporate tax systems and cross country profit shifting. Oxford Economic Papers, 52(2): 306-325. DOI: 10.1093/oep/52.2.306 Go to original source...
    15. HECKEMEYER, J. and OVERESCH, M. 2013. Multinationals' profit response to tax differentials: Effect size and shifting channels. ZEW Discussion Paper No. 13-045. ZEW. Go to original source...
    16. HINES, R. and RICE, E. 1994. Fiscal paradise: Foreign tax havens and American business. Quarterly Journal of Economics, 109(1): 149-182. DOI: 10.2307/2118431 Go to original source...
    17. HUIZINGA, H. and LAEVEN, L. 2008. International profit shifting within multinationals: A multi-country perspective. Journal of Public Economics, 92(5): 1164-1182. DOI: 10.1016/j.jpubeco.2007.11.002 Go to original source...
    18. HUIZINGA, H., LAEVEN, L. and NICODEME, G. 2008. Capital structure and international debt shifting. Journal of Financial Economics, 88(1): 80-118. DOI: 10.1016/j.jfineco.2007.05.006 Go to original source...
    19. HUIZINGA, H. P., VOGET, J. and WAGNER, W. B. 2014. International taxation and cross-border banking. American Economic Journal: Economic Policy, 6(2): 94-125. Go to original source...
    20. KRAUTHEIM, S. and SCHMIDT-EISENLOHR, T. 2011. Heterogeneous firms, "profit shifting" FDI and international tax competition. Journal of Public Economics, 95(1): 122-133. DOI: 10.1016/j.jpubeco.2010.10.008 Go to original source...
    21. LANGENMAYR, D. and REITER, F. 2017. Trading Offshore: Evidence on Banks' Tax Avoidance. SSRN Electronic Journal. [Online]. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3035335 [Accessed: 2018, May 14]. Go to original source...
    22. LOHSE, T. and RIEDEL, N. 2013. Do transfer pricing laws limit international income shifting? Evidence from European multinationals. CESifo Working Paper No. 4404. Munich: CESifo. Go to original source...
    23. MAFFINI, G. and MOKKAS, S. 2011. Profit shifting and measured productivity of multinational firms. Oxford Bulletin of Economics and Statistics, 73(1): 1-20. DOI: 10.1111/j.1468-0084.2010.00610.x Go to original source...
    24. MERZ, J. and OVERESCH, M. 2016. Profit shifting and tax response of multinational banks. Journal of Banking & Finance, 68C: 57-68. DOI: 10.1016/j.jbankfin.2016.03.015 Go to original source...
    25. OECD. 2013. Addressing Base Erosion and Profit Shifting. OECDiLibrary. [Online]. Available at: https://www.oecd-ilibrary.org/taxation/addressing-base-erosion-and-profit-shifting_9789264192744-en [Accessed: 2018, May 14].
    26. PERALTA, S., WAUTHY, X., and VAN YPERSELE, T. 2006. Should countries control international profit shifting? Journal of International Economics, 68(1): 24-37. DOI: 10.1016/j.jinteco.2005.06.003 Go to original source...
    27. SWENSON, D. L. 2001. Tax reforms and evidence of transfer pricing. National Tax Journal, 54(1): 7-25. DOI: 10.17310/ntj.2001.1.01 Go to original source...
    28. WEICHENRIEDER, A. J. 2009. Profit shifting in the EU: Evidence from Germany. International Tax and Public Finance, 16(3): 291-297. DOI: 10.1007/s10797-008-9068-x Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content