Saving taxes through foreign plant ownership |
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Authors: | Peter Egger Wolfgang Eggert Hannes Winner |
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Institution: | a ETH Zurich, WEH E6, Weinbergstrasse 35, 8092 Zurich, Switzerland b CEPR, United Kingdom c CESifo, Germany d WIFO, Austria e GEP Nottingham, United Kingdom f University of Paderborn, Warburgerstr. 100, D-33098 Paderborn, Germany g University of Salzburg; Kapitelgasse 5-7, A-5010 Salzburg, Austria |
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Abstract: | This paper analyzes to which extent foreign plant ownership involves lower tax payments than domestic plant ownership. We assess hypotheses about the tax savings of endogenous foreign subsidiary ownership relative to domestic firms in a data-set of 507,542 foreign- and domestically-owned manufacturing plants in Europe. We identify a significant profit tax saving of endogenous foreign ownership in high-tax host countries. There is evidence of profit shifting which seems more pronounced than debt shifting in Europe: multinationals earn significantly higher profits than comparable domestic units in low-tax countries but significantly lower ones in high-tax countries. Consequently, profit tax payments of foreign-owned firms are lower than those of domestic firms in high-tax countries but higher in low-tax countries. |
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Keywords: | H25 H73 F23 C21 |
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