No. 1529 - Profit shifting via intragroup lending: measuring and comparing the debt structure and interest rate channels
Multinational groups can use intragroup lending to shift profits to low-tax jurisdictions and reduce the overall tax burden of the group. This paper provides novel evidence on the magnitude of this channel by analysing the debt structure of multinational groups with a presence in Italy over the 2013-2022 period and by comparing the interest rates on loans received from foreign related parties with those on loans obtained from unrelated parties.
Firms belonging to multinational groups with affiliates in tax havens and exhibiting higher profit margins rely more heavily on related foreign party debt than on alternative sources of financing and face higher interest rates on such loans. However, the actual amount of corporate tax avoided in Italy through this strategy is estimated to be modest.
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