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Profit shifting and tax‐rate uncertainty
Author(s) -
Delis Manthos D.,
Hasan Iftekhar,
Karavitis Panagiotis I.
Publication year - 2020
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12429
Subject(s) - transfer pricing , subsidiary , debt , monetary economics , profit (economics) , corporate tax , tax rate , economics , business , microeconomics , debt financing , tax credit , tax avoidance , public economics , finance , multinational corporation
Using firm‐level data for 1,084 parent firms in 24 countries and for 9,497 subsidiaries in 54 countries, we show that tax‐motivated profit shifting is larger among subsidiaries in countries that have stable corporate tax rates over time. Our findings further suggest that firms move away from transfer pricing and toward intragroup debt shifting that has lower adjustment costs. Our results are robust to several identification methods and respecifications, and they highlight the important role of tax‐rate uncertainty in the profit‐shifting decision while pointing to an adjustment away from more costly transfer pricing and toward debt shifting.