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Business & Economics

COMPANIES LOCATED IN TAX HAVENS AND WAGE COSTS: THE CASE OF SLOVAKIA²
Michal Istok, Samer Khouri, Lea Slampiakova, Kamil Scerba

ABSTRACT. Companies transfer their headquarters to tax havens for various reasons, most often due to tax optimisation purposes, to ensure the anonymity of the ultimate beneficial owners (UBO), or to take advantage of a more favourable business, legal and tax environment. Economic tax theory states that if a company can reduce its tax bill, the saved funds can be used as investments in R&D, FDI, production expansion, or to direct more funds to its employees (higher salaries or to employ more employees). For this reason, the goal of our paper was to assess and compare, based on an analysis, the differences as regards wage costs and compulsory social and health contributions paid by employers by Slovak companies with ownership links to tax havens compared to their counterparts. We mainly use non-parametric methods to determine statistically significant differences in the investigated ratios (Mann-Whitney test with Bonferroni correction and Kruskal-Wallis test). We used and matched two databases (FinStat and Bisnode databases) for 2014 and 2015. Our results indicate that the higher the level of tax aggressiveness (as regards the individual tax haven category), the lower salaries and social and health insurance contributions are paid by Slovak companies. The results suggest that companies with ownership links to the OFFSHORE and MIDSHORE tax haven categories have the lowest levels of wage costs and social and health contributions relative to total assets. A different situation was found for companies in the ONSHORE category, as these companies have the highest wage costs and social and health insurance contributions relative to assets among the investigated groups. Our broaden research of alternative labour acquiring did not confirm the hypothesis that Slovak companies located in tax havens use outsourcing (agency employment) to a greater degree.

KEYWORDS:  tax havens, wage costs, compulsory social and health contributions, tax havens, tax avoidance, Slovakia.

JEL classification:  E24, H25, H26, J30, M51.

Acknowledgement: The paper was supported by the International Visegrad Fund's Visegrad Grant No. 21830038".