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Taxes and the Location of Targets

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  • Wiji Arulampalam

    ()
    (University of Warwick, Oxford University Centre for Business Taxation and Institute for the Study of Labor (IZA), Bonn)

  • Michael P. Devereux

    ()
    (Oxford University Centre for Business Taxation)

  • Federica Liberini

    ()
    (University of Warwick)

Abstract

This paper uses firm-level data to investigate the impact of taxes on the international location of targets in M&A. In principle, a higher tax rate in the target’s country could make an acquisition there more likely, less likely, or have no effect at all. We combine financial and ownership data for companies in ORBIS in 2005 with domestic and cross-border acquisitions in ZEPHYR between 2006 and 2008. We estimate a random parameters form of mixed logit model. We find that the statutory tax rate in the target country has a negative impact on the probability of an acquisition in that country, with an average elasticity of around 1. The size of the effect differs (i) between acquirers that were multinational or domestic in 2005; (ii) between domestic and cross-border acquisitions; and (iii) depending on whether the acquirer’s country has a worldwide or territorial tax system.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1213.

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Date of creation: 2012
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Handle: RePEc:btx:wpaper:1213

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