Abstract
The main aim of this paper is to provide empirical evidence about profit-shifting to selected tax havens by Slovak companies. This contribution focused on the very rare evidence of use of tax havens by Slovak companies not only in the field of corporate income tax, but also in selected areas of profitability. Two sources of data were used. Lists of Slovak companies with tax haven links were provided by the company, Bisnode, and financial statements of investigated companies were gained from the Finstat database. Based on the available data, the investigated period was between 2008 and 2016. We statistically tested selected indicators (ETR, taxes per assets, ROE, ROA, and ROS) of Slovak companies with direct ownership links to tax havens compared to their counterparts. Our findings suggest that Slovak companies with an ownership link to tax havens pay significantly lower taxes compared to companies without ownership links to tax havens during the period monitored. The aggressive tax planning was not only confirmed by the significantly lower reported values of ETR and taxes per assets, but also by the lower values of ROA. On the one side, Slovak companies with ownership links to midshore tax havens had the highest values of ROE, ROA, and ROS, but on the other side, these Slovak companies reported the highest ETR among the appointed categories (onshore, midshore, and offshore). The lowest taxes paid per unit of total assets were found in Slovak companies with ownership links to onshore tax havens. The analysis was supplemented by the changes of the selected indicators before and after obtaining an ownership link to a tax haven.
Highlights
Slovak companies, after a period of economic transformation, privatization, and FDI inflows, were not considered to be key players in worldwide business
The growth rate has slowed a bit, partially as a result of the Anti-Tax Avoidance Directive (2017/952, 2016/1164) [56,57] and individual measures taken in EU member countries, but the total number has still grown, reaching 4881 Slovak companies in 2018, while there was a decrease in the Czech Republic (Bisnode) [52]
The highest difference was found in the effective tax rates where tax haven companies paid only about 10% when compared with the second group of companies
Summary
After a period of economic transformation, privatization, and FDI inflows, were not considered to be key players in worldwide business. This is still true, the general anonymity or secrecy of certain processes, including ownership structures in certain regions, has blocked efforts to fully describe and understand the extent and networks of economic relations. This is mainly in the case of Slovak companies “hidden” inside a web of ownership structures. As profit is the primary effect of business activity and general information about the performance of Slovak companies is lacking, the following study focuses on the different aspects of profitability and the detection of Slovak companies with ownership links to tax havens who pay lower taxes on their earnings before tax
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