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Effects of territorial and worldwide corporation tax systems on outbound M&As

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Listed:
  • Feld, Lars P.
  • Ruf, Martin
  • Scheuering, Uwe
  • Schreiber, Ulrich
  • Voget, Johannes

Abstract

Repatriation taxes reduce the competitiveness of multinational firms from tax credit countries when bidding for targets in low tax countries. This comparative disadvantage with respect to bidders from exemption countries violates ownership neutrality, which results in production inefficiencies due to second-best ownership structures. This paper empirically estimates the magnitude of these effects. The abolishment of repatriation taxes in Japan and in the U.K. in 2009 has increased the number of acquisitions abroad by Japanese and British firms by 31.9% and 3.9 %, respectively. A similar policy switch in the U.S. is simulated to increase the number of U.S. cross-border acquisition by 17.1 %. We estimate the yearly gain in efficiency to be around 525 million dollar due to the Japanese reform and 13.5 million dollar due to the U.K. reform. Simulating such a reform for the U.S. results in a yearly efficiency gain of 1134 million dollar.

Suggested Citation

  • Feld, Lars P. & Ruf, Martin & Scheuering, Uwe & Schreiber, Ulrich & Voget, Johannes, 2013. "Effects of territorial and worldwide corporation tax systems on outbound M&As," ZEW Discussion Papers 13-088, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:13088
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    References listed on IDEAS

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    Cited by:

    1. Dhammika Dharmapala, 2016. "The Economics of Corporate and Business Tax Reform," CESifo Working Paper Series 5864, CESifo Group Munich.
    2. Mihir A. Desai & Dhammika Dharmapala, 2015. "Interest Deductions in a Multijurisdictional World," National Tax Journal, National Tax Association, vol. 68(3), pages 653-680, September.
    3. Hirokazu Mizobata & Masaaki Suzuki, 2014. "The Effects of Repatriation Taxes on FDI:Evidence from OECD Multinationals," KIER Working Papers 902, Kyoto University, Institute of Economic Research.
    4. Ruud A. de Mooij & Ikuo Saito, 2014. "Japan’s Corporate Income Tax; Facts, Issues and Reform Options," IMF Working Papers 14/138, International Monetary Fund.

    More about this item

    Keywords

    international taxation; ownership neutrality; cross-border M&As; repatriation taxes;

    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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