EconPapers    
Economics at your fingertips  
 

The Cadbury Schweppes judgment and its implications on profit shifting activities within Europe

Sabine Schenkelberg ()
Additional contact information
Sabine Schenkelberg: University of Cologne

International Tax and Public Finance, 2020, vol. 27, issue 1, No 1, 31 pages

Abstract: Abstract In 2006, the European Court of Justice (ECJ) decided with the Cadbury Schweppes judgment that European Controlled-Foreign-Company (CFC) rules infringe the principle of freedom of establishment and restricted the applicability thereof. This paper analyzes the impact of mandatory amendments to European CFC rules on tax planning activities within Europe. Using a difference-in-differences approach, my results provide robust evidence that pre-tax earnings of subsidiaries located in European low-tax jurisdictions have increased by around 10% after the Cadbury Schweppes judgment. My analysis shows further that the increase in pre-tax earnings is related to facilitated profit shifting activities. Multinational corporations with high incentives or enhanced profit shifting opportunities react more to the Cadbury Schweppes judgment. The findings point out that CFC rules became less effective, and thus, profit shifting activities within Europe are less restricted after the ECJ judgment. Additional tests suggest further that on average 85% of the increase in pre-tax earnings is attributable to strategic transfer pricing determination, while less than 15% is attributable to debt shifting activities.

Keywords: CFC rules; Cadbury Schweppes judgment; Tax avoidance; Profit shifting (search for similar items in EconPapers)
JEL-codes: H26 H32 F23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s10797-019-09553-w Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:27:y:2020:i:1:d:10.1007_s10797-019-09553-w

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-019-09553-w

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2021-05-08
Handle: RePEc:kap:itaxpf:v:27:y:2020:i:1:d:10.1007_s10797-019-09553-w