The taxation of domestic and foreign banking

Using bank level data for 80 countries in the 1988-1995 period, this paper examines taxation of domestic and foreign-owned banks. The profitability of foreign banks is found to rise relatively little with their domestic tax b urden, perhaps reflecting the availability of foreign tax credits and profi t shifting opportunities. The paper also examines whether domestic and fore ign banks pay different amounts of domestic tax. Taxes paid by foreign bank s are shown to rise relatively little with the local statutory tax. This ev idence supports the hypothesis that foreign banks engage in relatively exte nsive profit shifting. (C) 2001 Elsevier Science B.V. All rights reserved.