Some multinational corporations establish financing entities in low-tax jurisdictions to finance affiliates in high-tax jurisdictions by providing internal debt. While this minimizes tax payments, only few multinationals provide all internal lending from such financing entities. Many affiliates borrow from the parent firm, which often seems suboptimal from a taxation point of view. We set up a theory model with the objective to better understand parental debt financing of affiliates of multinational corporations. We then test the predictions of the model using data on the universe of German multinationals. A key finding, suggested by our theory and confirmed by the empirical analysis, is that (highly) productive multinationals are more likely to use internal banks to shift profits. These firms have many affiliates and are large in terms of their fixed assets.