CFC Legislation, Passive Assets and the Impact of the ECJ's Cadbury-Schweppes Decision

Research, Preprint OPEN
Martin Ruf ; Alfons J. Weichenrieder (2013)
  • Publisher: Center for Economic Studies and Ifo Institute (CESifo) Munich
  • Subject: corporation tax | European Court of Justice, corporation tax, foreign direct investment, CFC regulation, passive investment | H73 | passive investment | Court of Justice of the European Union, corporation tax, foreign direct investment, CFC regulation, passive investment | H25 | Court of Justice of the European Union | CFC regulation | foreign direct investment
    • jel: jel:H73 | jel:H25
      ddc: ddc:330

In its Cadbury-Schweppes decision of 12 September 2006 (C-196/04), the Court of Justice of the European Union decided that the UK controlled foreign corporation rules, which were implemented to subject low taxed passive income of foreign affiliates to UK corporate tax, implied an infringement of the freedom of establishment. Consequently, many EU countries including Germany changed their legislation. The paper discusses to which extent the ECJ ruling has impacted on the allocation of passive assets in German multinationals. Using firm level data we find evidence for an increased preference for low-tax European countries compared to non-European countries.
  • References (16)
    16 references, page 1 of 2

    Altshuler, R., and G. Hubbard (2003) “The effect of the tax reform act of 1986 on the location of assets in financial services firms“, Journal of Public Economics 87, 109- 127.

    Barry, F., and R. Healy-Rae (2010) “FDI implications of recent European Court of Justice decisions on corporation tax matters”, European Business Organization Law Review 11, 125-146.

    Büttner, T., and M. Ruf (2007) “Tax Incentives and the location of FDI: Evidence from a panel of German multinationals”, International Tax and Public Finance 14, 151-164.

    Egger, P., and M. Larch (2008) “Interdependent preferential trade agreement memberships: an empirical analysis”, Journal of International Economics 76, 384-399.

    Förster, D., and G. Schmidtmann (2004) “CFC legislation in Germany”, Intertax 476-486.

    Greene, W.H. (2008) Econometric Analysis, 6th ed. (Upper Saddle River: Pearson Prentice Hall).

    Kennedy, P.E. (1981) “Estimation with correctly interpreted dummy variables in semilogarithmic equations”, American Economic Review 71, 801.

    Lipponer, A. (2003) „Deutsche Bundesbank's FDI micro database“, Schmollers Jahrbuch - Zeitschrift für Wirtschafts- und Sozialwissenschaften 123, 593-600.

    Ramb, F., and A.J. Weichenrieder (2005) “Taxes and the financial structure of German inbound FDI”, Review of World Economics 141, 670-692.

    Ruf, M. (2011) “Why is the response of multinationals' capital-structure choice to tax incentives that low? Some possible explanations”, FinanzArchiv/Public Finance Analysis 67, 123-144.

  • Related Research Results (1)
  • Metrics
    No metrics available
Share - Bookmark