Schindler, Dirk Møen, Jarle Schjelderup, Guttorm Tropina, Julia
Year of Publication:
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Taxation of Multinationals D06-V2
Multinational companies can exploit the tax advantage of debt more aggressively than national companies. Besides utilizing the standard debt tax shield, multinationals can shift debt from affiliates in low-tax countries to affiliates in high-tax countries. We study the capital structure of multinationals and expand previous theory by incorporating debt tax shield effects from both internal and external capital markets. A main finding is that firm value is maximized if both internal and external debt is used, and that internal lending should be conducted through a financial center in the lowest-taxed affiliate. Testing our model using a large panel of German multinationals, we identify all three debt tax shields. Our estimates suggest that internal and external debt shifting are of about equal relevance.