Profit shifting and tax response of multinational banks

This paper analyzes multinational banks' response to taxation. For the empirical analysis we use firm-level bank data from the Bankscope database. We find significant tax effects on reported profits of bank subsidiaries. The magnitude for the tax response of reported profits doubles the effects found in previous studies for non-financial MNCs. Additional analysis reveals that the response to tax incentives differs across business types. The tax elasticity of revenues generated by interest-bearing activities is less responsive compared to other activities. Results also reveal significant tax effects on loan loss provisions.