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International Taxation and Cross-Border Banking

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  • Harry Huizinga

    ()
    (CentER and EBC, Tilburg University and CEPR)

  • Johannes Voget

    ()

  • Wolf Wagner

    ()
    (CentER and EBC, Tilburg University, Duisenberg School of Finance)

Abstract

In a cross-border takeover, the tax base associated with future capital gains is transferred from target shareholders to acquirer shareholders. Crosscountry differences in capital gains tax rates enable us to estimate the discount in target valuation on account of future capital gains. A one percentage point increase in the capital gains tax rate reduces the value of equity by 0.225%. The implied average effective tax rate on capital gains is 7% and it raises the cost of capital by 5.3% of its no-tax level. This indicates that capital gains taxation is a significant cost to firms when issuing new equity.

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Bibliographic Info

Paper provided by Oxford University Centre for Business Taxation in its series Working Papers with number 1226.

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Date of creation: 2012
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Handle: RePEc:btx:wpaper:1226

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Keywords: Capital gains taxation; Cost of capital; International takeovers; Takeover premium;

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References

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Cited by:
  1. Bertay, Ata Can & Demirguc-Kunt, Asli & Huizinga, Harry, 2011. "Is the Financial Safety Net a Barrier to Cross-Border Banking?," CEPR Discussion Papers 8712, C.E.P.R. Discussion Papers.
  2. Jürgen Antony & Michiel Bijlsma & Adam Elbourne & Marcel Lever & Gijsbert Zwart, 2012. "Financial transaction tax: review and assessment," CPB Discussion Paper 202, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Gaetan Nicodeme, 2009. "Corporate Income Tax and Economic Distortions," Taxation Papers 15, Directorate General Taxation and Customs Union, European Commission, revised Apr 2009.
  4. Copenhagen Economics, 2011. "Elasticities of Financial Instruments, Profits and Remuneration," Taxation Papers 30, Directorate General Taxation and Customs Union, European Commission.
  5. Beck, T.H.L. & Huizinga, H.P., 2011. "Taxing banks – here we go again!," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5046881, Tilburg University.
  6. Timothy J. Goodspeed, 2012. "The Incidence of Bank Regulations and Taxes on Wages: Evidence from US States," CESifo Working Paper Series 4026, CESifo Group Munich.

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