This paper examines the economic consequences of anti-loss trafficking rules, which disallow the use of tax loss carry-forwards after a substantial change in ownership or activity. Using staggered changes to anti-loss trafficking rules across EU28 Member States and Norway from 1998 to 2019 in a stacked-cohort difference in difference design, we find that limiting the transfer of tax losses leads to a 22% decrease in the volume of mergers and acquisitions in targets that are more likely to have tax loss carryforwards. M&As related to profitable targets are not affected, confirming the tax channel mechanism. We further study the broader economic effects of anti-loss trafficking rules: we observe decreases in birth and survival rates of young companies in response to stricter regulations and vice versa. Our findings further suggest that tighter (looser) anti-loss trafficking rules impair (increase) firms’ return on assets, especially for R&D intensive firms. Furthermore, a 22% decrease in successful patent applications in case of tighter rules suggests that limiting the transferability of losses affects innovative activity.