Employment Effects of a Weakening in European Anti-Tax Avoidance Rules: evidence from France

Margarita Lopez Forero () and Benjamin Michallet ()
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Margarita Lopez Forero: Banque de France, Université Paris-Saclay - Univ Evry, EPEE
Benjamin Michallet: Paris School of Economics

No 21, Working Papers from EU Tax Observatory

Abstract: This paper provides causal evidence on how multinational enterprises’ (MNEs) presence in tax havens translates into job cuts in France following the 2006 European Court of Justice (ECJ) judgement on the Cadbury-Schweppes case, which weakened member States’ controlled foreign company rules (CFC). Using French firm-level data over 2001 and 2014 we show that this weakening in European Anti-tax avoidance rules generates a sharp decline in employment in France in European MNEs having a pre-judgement presence in a European tax haven. We show that treated MNEs lose about 6% of their local employment after the ECJ decision. The effects are mainly concentrated in highly qualified workers and white collars (5% decline for each category). An event-study design shows that no effects are found for MNEs without a pre-judgement presence in a European tax haven, suggesting that it is the weakening in the CFC rules that fosters job cuts at home. Two plausible explanations for these findings are linked to: i) a decline in the cost of opacity allowing firms to restructure and carry out otherwise expensive mass layoffs in France and ii) more stringent rules specifically affecting †wholly artificial arrangements†(i.e. pure letter boxes), which increase the need to comply with substance rules and justify a presence in a European tax haven.

Keywords: Tax Havens; Freedom of Establishment; Employment; Mass layoffs; Economic Substance (search for similar items in EconPapers)
JEL-codes: D33 F23 H26 H87 O47 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2024-02
New Economics Papers: this item is included in nep-eec
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