eBook

Taxation and Leverage in International Banking

Ruud A. de Mooij, Ms. Grace Weishi Gu, Tigran Poghosyan

2012

Overview

This paper explores how corporate taxes affect the financial structure of multinational banks. Guided by a simple theory of optimal capital structure it tests (i) whether corporate taxes induce subsidiary banks to raise their debt-asset ratio in light of the traditional debt bias; and (ii) whether international corporate tax differentials vis-a-vis foreign subsidiary banks affect the intra-bank capital structure through international debt shifting. Using a novel subsidiary-level dataset for 558 commercial bank subsidiaries of the 86 largest multinational banks in the world, we find that taxes matter significantly, through both the traditional debt bias channel and the international debt shifting that is due to the international tax differentials. The latter channel is more robust and tends to be quantitatively more important. Our results imply that taxation causes significant international debt spillovers through multinational banks, which has potentially important implications for tax policy.

• Publisher: INTERNATIONAL MONETARY FUND,International Monetary Fund
• Subject: Econometric models / Financial leverage / International banking ;Capital ;Taxation ;Corporate taxes ;Commercial banks ;Economic models ;Bank taxation ;corporate tax ;debt bias ;leverage. ;international tax;subsidiaries;capital requirement;capital structure;tax differences;minimum capital requirement;foreign tax;local tax rate;corporate taxes;tax changes;tax countries;tax profits;tax competition;equity returns;tax elasticity;tax benefits;foreign tax rates;high-tax countries;corporate income tax;capital ratio;foreign tax credit;average foreign tax rate;high-tax jurisdictions;local � taxation;average tax rate;equity finance;tax return;higher tax rates;tax change;tax journal;corporate tax base;effective tax rates;high- tax countries;taxable profits;domestic credit;foreign tax rate;national tax journal;local taxation;tax payment;tax coordination;low-tax countries;foreign taxes;effects of taxation;equity ratio;moral hazard;equity investment / Taxation
• ISBN: 1475572204, 147554068X, 9781475540680, 9781475572209, 9781475549386, 1475549385