Profit shifting in the EU: Evidence from Germany

The paper takes several approaches to identify profit shifting behavior using data on German inbound and outbound FDI. Among other things, it looks at the correlation between the home country tax rate of a parent and the net of tax profitability of its German subsidiary. The finding is compatible with profit shifting behavior. For profitable subsidiaries that are directly owned by a foreign investor the evidence suggests that a 10 percentage point increase in the parent's home country tax rate leads to roughly half a percentage point increase in the profitability of the German subsidiary