Tax sensitivities in the profit Distribution : a study of european multinationals
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- Master Thesis 
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.