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

Author

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 inefficiency 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," Freiburg Discussion Papers on Constitutional Economics 13/11, Walter Eucken Institut e.V..
    • Handle: RePEc:zbw:aluord:1311
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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.
    2. 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.
    3. Harris, Jeremiah & O'Brien, William, 2018. "U.S. worldwide taxation and domestic mergers and acquisitions," Journal of Accounting and Economics, Elsevier, vol. 66(2), pages 419-438.
    4. Dyreng, Scott D. & Lindsey, Bradley P. & Markle, Kevin S. & Shackelford, Douglas A., 2015. "The effect of tax and nontax country characteristics on the global equity supply chains of U.S. multinationals," Journal of Accounting and Economics, Elsevier, vol. 59(2), pages 182-202.
    5. Mihir A. Desai & Dhammika Dharmapala, 2015. "Interest Deductions in a Multijurisdictional World," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(3), pages 653-680, September.
    6. Ulrich Schreiber, 2015. "Investitionseffekte des BEPS Aktionsplans der OECD," Schmalenbach Journal of Business Research, Springer, vol. 67(1), pages 102-127, February.
    7. Dhammika Dharmapala, 2018. "The Consequences of the TCJA's International Provisions: Lessons from Existing Research," CESifo Working Paper Series 7249, CESifo.
    8. Gary Clyde Hufbauer & Euijin Jung & Tyler Moran & Martian Vieiro, 2015. "The OECD's "Action Plan" to Raise Taxes on Multinational Corporations," Working Paper Series WP15-14, Peterson Institute for International Economics.
    9. Anusha Chari, 2020. "The International Market for Corporate Control," NBER Working Papers 26843, National Bureau of Economic Research, Inc.
    10. Ruud A. de Mooij & Ikuo Saito, 2014. "Japan’s Corporate Income Tax: Facts, Issues and Reform Options," IMF Working Papers 2014/138, International Monetary Fund.

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    More about this item

    Keywords

    international mergers and acquisitions; business taxation; repatriation taxes; ownership neutrality;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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