The European Company (Societas Europaea – SE) Caught In Between Cross-Border Mobility and Lock-In Effect – An Empirical Analysis on the Influence of Exit Taxation upon Cross-Border Mergers and Seat Location Decisions

Ever since the European Company (Societas Europaea - SE) was introduced in 2004 to complete the single European market and to facilitate freedom of establishment of companies, the number of established SEs has increased substantially. The SE Statute provides for cross-border mobility enabling the SE to engage in regulatory, legal and international tax arbitrage to attain competitive advantages. The uneven regional distribution of SEs as well as the low existing numbers of transferred seats and cross-border mergers indicate that the arbitrage opportunities the SE offers are not being made use of to the expected extent. This paper examines empirically the correlation between exit taxation provisions of Member States of the European Economic Area and the current distribution of SEs and their formation by cross-border merger as well as their decision to transfer the registered office by employing two simple econometric models: a chi-square independency test and a regression analysis. The results emerging from this study suggest that exit taxation provisions affect the numbers of cross-border mergers and transfers of the registered office, the direction of the merger and the direction of the transfer of the registered office. The potential realization and taxation of accrued gains causes lock-in effects.