The Role of Corporate Income Tax Differences on the Profit Shifting Behavior: Evidence from the Czech Republic
The Role of Corporate Income Tax Differences on the Profit Shifting Behavior: Evidence from the Czech Republic

Author(s): Danuše Nerudova, Veronika Solilova, Marian Dobranschi, Marek Litzman
Subject(s): Business Economy / Management, Economic policy, Comparative politics, EU-Accession / EU-DEvelopment, Fiscal Politics / Budgeting
Published by: Masarykova univerzita nakladatelství
Keywords: profit shifting; tax differential; semi-elasticity; effective CIT rate; tax avoidance;
Summary/Abstract: The aim of this paper is to investigate the profit shifting behavior of Czech subsidiaries owned by parent companies placed in top five EU investor countries in the Czech Republic. We analyze the sensitivity of profit before taxation to the corporate tax differences between Czech subsidiaries and other subsidiaries owned by the same Multinational Enterprise. We expect that the profit shifting behavior of the Czech subsidiaries to be less significant compared to the existent estimates by the literature. This hypothesis arises from the particular tax advantageous position of the Czech Republic relative to the top five EU investor countries high corporate tax rates. We adopt the Hines-Rice approach to analyze the semi-elasticity of profits before taxation to the corporate income tax differences.

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