Profit shifting of multinational entities - empirical analysis of effective tax rates, mergers & acquisitions and financing structures

In recent years, both tax researchers and policy makers have intensely discussed profit shifting of multinational entities. Applying profound econometrical methods, I take three perspectives on profit shifting that have not received much attention in research yet. First, I analyze in detail whether profit shifting related firm characteristics affect firms’ effective tax rates (ETRs). I find a negative relation between research and development intensity and ETR and a positive relation between firm size and ETR. Second, I comprehensively evaluate the effect of profit shifting opportunities within acquirer corporate taxation systems on cross-border merger and acquisition (M&A) activity. I find that exempting foreign dividends in the acquirer country increases M&A prices and that capital gains taxation in the acquirer country has no effect on M&A prices. Further, I detect that limiting profit shifting opportunities via controlled foreign corporation rules negatively affects M&A activity. Third, I approach profit shifting via internal debt financing by performing an extensive case study on Belgian finance companies of German DAX and MDAX companies. I detect 14 potential finance companies that receive around one billion Euro of shifted profits each year