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Tax sensitivities in the profit Distribution : a study of european multinationals

Bøgwald, Jacob Quentin; Thorstensen, Nathalie
Master thesis
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URI
http://hdl.handle.net/11250/2609861
Date
2019
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  • Master Thesis [4657]
Abstract
The main purpose of this study is to analyze the tax sensitivity of European Multinationals.

In income shifting literature, it has become a common approach to assume that the most tax

aggressive MNCs tend to bunch around zero profits. Due to concerns raised in recent

literature in terms of income shifting constraints and lack of flexibility, we aim to examine

whether tax sensitivities are heterogeneous in the profit distribution. Consequently, we

perform interquantile range regressions using the capital-weighted tax incentives measure

developed by Huizinga and Laeven (2008), and the dependent variable ln(ROA+1)

introduced by De Simone et al. (2017). When analyzing financial and ownership data from

the Amadeus database, we found that the tax sensitivity is greater around the narrow range of

zero profitability. This implies that the assumption of bunching around zero is valid, and that

the profit distribution displays heterogeneous levels of tax sensitivity. However, we observe

higher levels of tax sensitivity than anticipated in other parts of the profit distribution, which

suggests that the distribution of tax sensitivity could be less heterogeneous than initially

presumed.

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