The role of headquarters in multinational profit shifting strategies

Dischinger, Matthias; Knoll, Bodo; Riedel, Nadine

doi:10.1007/s10797-012-9265-5

Cited by 114 publications

(97 citation statements)

References 17 publications

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“…Thus, the finding in Column (9) tends to reinforce the baseline results, in that the strategic use of debt is a more credible channel for profit shifting across industries and in response to relatively short-term earnings shocks experienced by the parent. 25 tax subsidiary are reduced, this for example enhances the estimated parent profitability but simultaneously reduces the subsidiary's profitability and thus biases the effect downwards. 24 Note that the sample size is smaller than in Specification (6).…”

Section: ) Resultsmentioning

confidence: 99%

Earnings shocks and tax-motivated income-shifting: Evidence from European multinationals

Dharmapala

Riedel

2013

Journal of Public Economics

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227

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This paper presents a new approach to estimating the existence and magnitude of taxmotivated income shifting within multinational corporations. Existing studies of income shifting use changes in corporate tax rates as a source of identification. In contrast, this paper exploits exogenous earnings shocks at the parent firm and investigates how these shocks propagate across low-tax and high-tax multinational subsidiaries. This approach is implemented using a large panel of European multinational affiliates over the period [1995][1996][1997][1998][1999][2000][2001][2002][2003][2004][2005]. The central result is that parents' positive earnings shocks are associated with a significantly positive increase in pretax profits at low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. The result is robust to controlling for various other differences between low-tax and high-tax affiliates and for country-pair-year fixed effects. Additional tests suggest that the estimated effect is attributable primarily to the strategic use of debt across affiliates. The magnitude of income shifting estimated using this approach is substantial, but somewhat smaller than that found in the previous literature. Acknowledgments:We thank participants at the

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Section: ) Resultsmentioning

confidence: 99%

Earnings shocks and tax-motivated income-shifting: Evidence from European multinationals

Dharmapala

Riedel

2013

Journal of Public Economics

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227

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“…Overall, the prevailing spatial division of labor in the automotive industry suggests that peripheral regions, both at the national and international scale, are typified by lower value creation within global value chains (GVCs) and GPNs than core regions. Furthermore, external control contributes to a potential value transfer from peripheral branch plants to corporate headquarters in the form of various profit shifting strategies, including profit remittances and transfer pricing (Dischinger et al, 2014a(Dischinger et al, , 2014b.…”

Section: Introductionmentioning

confidence: 99%

Value creation and value capture in the automotive industry: Empirical evidence from Czechia

Pavlínek

Ženka

2015

Environ Plan A

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This article investigates how distinct tiers of firms contribute to value creation and value capture in the automotive industry. We employ firm-level indicators to evaluate the value creation and capture of distinct supplier tiers in the Czech automotive industry, while considering differences between foreign-owned and domestic firms. Our analysis suggests that the economic effects of the automotive industry largely depend on its capital intensity and that mostly foreign-owned higher tier firms generate and capture greater value than lower tier firms, which include the vast majority of domestic suppliers.

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“…Furthermore, we exclude headquarter firms from our sample due to the findings of Dischinger and Riedel (2010) and Dischinger et al (2014) who argue that the location of profits and profitable assets may be biased in favor of the headquarters. Moreover, loss-making firms are excluded because they face different tax planning incentives than profitable enterprises (see .…”

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On the Interdependency of Profit Shifting Channels and the Effectiveness of Anti-Avoidance Legislation

2017

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. The issue of base erosion and profit shifting has been on the international policy agenda for several years now. The aim of this paper is to examine how firms adjust their profit shifting mechanisms in a changing institutional environment. In particular, we test whether firms substitute one profit shifting strategy for another if respective costs change. To this end, we exploit changes in the strictness of transfer pricing regulations and thin capitalization rules over time in a panel of European multinational firms and study a quasi-experimental reform setting in France. We confirm existing evidence that tightening transfer pricing regulations reduces the tax sensitivity of earnings before interest and taxes (EBIT) substantially. Our results show, however, that this reduction includes both a reduction in profit shifting activity via the transfer pricing channel and a substitution with debt shifting. Moreover, firms using debt shifting to begin with rely more heavily on tax optimization of transfer prices when thin capitalization rules are strengthened. If transfer pricing regulations are also strict, the conditional reform effects show that the substitutive response is more pronounced for a subsample of firms with a high share of intangible property (IP). The difference-in-difference approach for the French tax reform illustrates an increase in profit shifting based on transfer prices for treated firms facing new restrictions on debt shifting. Again, the effect is stronger for IP intensive firms.

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The role of headquarters in multinational profit shifting strategies

Cited by 114 publications

References 17 publications

Earnings shocks and tax-motivated income-shifting: Evidence from European multinationals

Earnings shocks and tax-motivated income-shifting: Evidence from European multinationals

Value creation and value capture in the automotive industry: Empirical evidence from Czechia

On the Interdependency of Profit Shifting Channels and the Effectiveness of Anti-Avoidance Legislation

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