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Corporate tax regime and international allocation of ownership

Author

Listed:
  • Johannes Becker

    (Max Planck Institute for Intellectual Property, Competition and Tax Law)

  • Marco Runkel

    (University of Magdeburg)

Abstract

Would the introduction of a corporate tax system with consolidated tax base and formula apportionment lead to socially wasteful mergers and acquisitions across borders? This paper analyzes a two-country model with an international investor considering acquisitions of already existing target firms in a high-tax country and a low-tax country. The investor is able to shift profits from one location to another for tax saving purposes. Two systems of corporate taxation are compared, a system with separate accounting and a system with tax base consolidation and formula apportionment. It is shown that, under separate accounting, the number of acquisitions is inefficiently high in both the high tax and the low tax country. Under formula apportionment, the number of acquisitions is inefficiently high in the low tax country and inefficiently low in the high tax country. Under tax competition, a novel externality arises that worsens the efficiency properties of equilibrium tax rates under separate accounting, but may play an efficiency enhancing role under formula apportionment.

Suggested Citation

  • Johannes Becker & Marco Runkel, 2010. "Corporate tax regime and international allocation of ownership," Working Papers 1010, Oxford University Centre for Business Taxation.
    • Handle: RePEc:btx:wpaper:1010
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    Cited by:

    1. is not listed on IDEAS
    2. Martini, Jan Thomas & Niemann, Rainer & Simons, Dirk, 2016. "Tax-induced distortions of effort and compensation in a principal-agent setting," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 27(C), pages 26-39.
    3. Mlčúchová Markéta, 2023. "Formulary apportionment in the European Union—future research agenda," Economics and Business Review, Sciendo, vol. 9(3), pages 124-152, October.
    4. Hirofumi Okoshi, 2025. "Attractive target for tax avoidance: trade liberalization and entry mode," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(1), pages 238-270, February.
    5. Johannes Becker, 2024. "Rationalizing Formula Apportionment," CESifo Working Paper Series 11234, CESifo.

    More about this item

    Keywords

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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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