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Source versus Residence Based Taxation with International Mergers and Acquisitions

  • Johannes Becker
  • Clemens Fuest

This paper analyses tax competition and tax coordination in a model where capital flows occur in the form of mergers and acquisitions, rather than greenfield investment. In this framework, we show that differences in residence based taxes do not necessarily distort international ownership patterns. Moreover, tax competition yields globally efficient levels of source based corporate income taxes if residence based taxes on capital income are absent. In contrast, in the presence of residence based taxes on dividends, source based corporate income taxes are inefficiently high. The widespread view that tax coordination is less urgent if residence based taxes are available may therefore be misguided.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-11/cesifo1_wp2854.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2854.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2854
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  1. Swenson, Deborah L., 1994. "The impact of U.S. tax reform on foreign direct investment in the United States," Journal of Public Economics, Elsevier, vol. 54(2), pages 243-266, June.
  2. Johannes Becker & Clemens Fuest, 2008. "Tax Competition – Greenfield Investment versus Mergers and Acquisitions," CESifo Working Paper Series 2247, CESifo Group Munich.
  3. Huizinga, Harry & Voget, Johannes, 2006. "International Taxation and the Direction and Volume of Cross-Border M&As," CEPR Discussion Papers 5974, C.E.P.R. Discussion Papers.
  4. Huizinga, H.P. & Nielsen, S.B., 1995. "Capital income and profits taxation with foreign ownership of firms," Discussion Paper 1995-82, Tilburg University, Center for Economic Research.
  5. Johannes Becker & Clemens Fuest, 2010. "Taxing Foreign Profits With International Mergers And Acquisitions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 171-186, 02.
  6. Andreas Haufler & Christian Schulte, 2007. "Merger Policy and Tax Competition," CESifo Working Paper Series 2157, CESifo Group Munich.
  7. Gordon, R.H. & Bovenberg, A.L., 1994. "Why Is Capital So Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," Working Papers 358, Research Seminar in International Economics, University of Michigan.
  8. Devereux, Michael P. & Griffith, Rachel, 2002. "Evaluating Tax Policy for Location Decisions," CEPR Discussion Papers 3247, C.E.P.R. Discussion Papers.
  9. Collins, Julie H. & Kemsley, Deen & Shackelford, Douglas A., 1995. "Tax Reform and Foreign Acquisitions: A Microanalysis," National Tax Journal, National Tax Association, vol. 48(1), pages 1-21, March.
  10. Erik Devos & Palani-Rajan Kadapakkam & Srinivasan Krishnamurthy, 2009. "How Do Mergers Create Value? A Comparison of Taxes, Market Power, and Efficiency Improvements as Explanations for�Synergies," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1179-1211, March.
  11. Mieszkowski, Peter, 1972. "The property tax: An excise tax or a profits tax?," Journal of Public Economics, Elsevier, vol. 1(1), pages 73-96, April.
  12. di Giovanni, Julian, 2002. "What Drives Capital Flows? The Case of Cross-Border M&A Activity and Financial Deepening," Center for International and Development Economics Research, Working Paper Series qt7nq6d7wp, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  13. Rossi, Stefano & Volpin, Paolo, 2003. "Cross-Country Determinants of Mergers and Acquisitions," CEPR Discussion Papers 3889, C.E.P.R. Discussion Papers.
  14. Fuest, Clemens & Huber, Bernd & Mintz, Jack, 2005. "Capital mobility and tax competition," Munich Reprints in Economics 20329, University of Munich, Department of Economics.
  15. Fuest, Clemens & Huber, Bernd, 2004. "Why do countries combine the exemption system for the taxation of foreign profits with domestic double taxation relief?," Journal of International Economics, Elsevier, vol. 62(1), pages 219-231, January.
  16. Scholes, Myron S & Wolfson, Mark A, 1990. "The Effects of Changes in Tax Laws on Corporate Reorganization Activity," The Journal of Business, University of Chicago Press, vol. 63(1), pages S141-64, January.
  17. Devereux, Michael P. & Lockwood, Ben & Redoano, Michela, 2008. "Do countries compete over corporate tax rates?," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1210-1235, June.
  18. Desai, Mihir A. & Hines, James R. Jr., 2004. "Old Rules and New Realities: Corporate Tax Policy in a Global Setting," National Tax Journal, National Tax Association, vol. 57(4), pages 937-60, December.
  19. Alan J. Auerbach & Joel Slemrod, 1997. "The Economic Effects of the Tax Reform Act of 1986," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 589-632, June.
  20. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
  21. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-53, December.
  22. Clemens Fuest & Bernd Huber & Jack Mintz, 2003. "Capital Mobility and Tax Competition: A Survey," CESifo Working Paper Series 956, CESifo Group Munich.
  23. Bovenberg, A.L. & Gordon, R.H., 1996. "Why is capital so immobile internationally? Possible explanation and implications for capital income taxation," Other publications TiSEM 6a131c21-fd9a-4d83-8d9a-7, Tilburg University, School of Economics and Management.
  24. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  25. Michael P Devereux, 2007. "The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence," Working Papers 0702, Oxford University Centre for Business Taxation.
  26. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
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