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Cross-Border Acquisitions and Corporate Taxes: Efficiency and Tax Revenues

Author

Listed:
  • Norbäck, Pehr-Johan

    (Research Institute of Industrial Economics (IFN))

  • Persson, Lars

    (Research Institute of Industrial Economics (IFN))

  • Vlachos, Jonas

    (Stockholm Institute of Transistion Economics)

Abstract
We find that reduced foreign corporate taxes may lead to inefficient foreign acquisitions if complementarities between foreign and domestic assets are low, and to efficient foreign acquisitions if such complementarities are high. Moreover, with large complementarities, foreign acquisitions can increase domestic tax revenues. The reason is that in the bidding competition between the foreign firms, all benefits from the acquisition, including tax advantages and evaded taxes, are competed away and captured by the domestic seller which, in turn, pays capital gains tax on the proceeds. Technical issues in the tax code, such as the treatment of goodwill deductibility, is also shown to crucially affect the pattern of foreign acquisitions.

Suggested Citation

  • Norbäck, Pehr-Johan & Persson, Lars & Vlachos, Jonas, 2006. "Cross-Border Acquisitions and Corporate Taxes: Efficiency and Tax Revenues," Working Paper Series 663, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0663
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Steven J. Davis & Magnus Henrekson, 2006. "Economic Performance and Work Activity in Sweden after the Crisis of the Early 1990s," NBER Working Papers 12768, National Bureau of Economic Research, Inc.
    2. Liberini, Federica, 2014. "Corporate Taxes and the Growth of the Firm," The Warwick Economics Research Paper Series (TWERPS) 1042, University of Warwick, Department of Economics.
    3. Steven J. Davis & Magnus Henrekson, 2010. "Economic Performance and Market Work Activity in Sweden After the Crisis of the Early 1990s," NBER Chapters, in: Reforming the Welfare State: Recovery and Beyond in Sweden, pages 225-252, National Bureau of Economic Research, Inc.
    4. Arulampalam, Wiji & Devereux, Michael P. & Liberini, Federica, 2019. "Taxes and the location of targets," Journal of Public Economics, Elsevier, vol. 176(C), pages 161-178.

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    More about this item

    Keywords

    Tax Competition; Ownership; Tax Revenues; FDI; M&As;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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