Ending Regulatory Avoidance through the Use of Letterbox Companies

6 Pages Posted: 11 Mar 2020

See all articles by Katrin McGauran

Katrin McGauran

SOMO (Centre for Research on Multinational Corporations)

Date Written: March 9, 2020

Abstract

Letterbox companies are legal entities set up by businesses to benefit from a regulatory framework in a jurisdiction in which they have little or no material operations. They enable ‘regime shopping’ for lower taxes, wages, labour standards and social contributions, as well as for different legal rights under bilateral treaties.

According to research commissioned by the European Parliament, a conservative estimate of the costs to the EU of corporate tax avoidance alone is €50-70 billion annually. Investigations show that letterbox companies are used to circumvent the Posting of Workers Directive and the Road Transport Regulation for the purpose of minimising responsibilities under labour law (ETF 2012).

This policy brief provides a definition of letterbox companies and, drawing on two case studies, shows how they are used to avoid labour standards and taxation. It concludes with a number of recommendations for combatting regulatory avoidance through letterbox companies.

Keywords: multinational enterprise ; labour law ; taxation ; social security ; collective agreement ; regulation ; labour standard

Suggested Citation

McGauran, Katrin, Ending Regulatory Avoidance through the Use of Letterbox Companies (March 9, 2020). ETUI Research Paper - Policy Brief 3/2020, Available at SSRN: https://ssrn.com/abstract=3551106 or http://dx.doi.org/10.2139/ssrn.3551106

Katrin McGauran (Contact Author)

SOMO (Centre for Research on Multinational Corporations)

Sarphatistraat 30
Amsterdam, 1018 GL
Netherlands

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