DP5974 International Taxation and the Direction and Volume of Cross-Border M&As

Author(s): Harry Huizinga, Johannes Voget
Publication Date: December 2006
Keyword(s): international taxation, mergers and acquisitions
JEL(s): F23, H25
Programme Areas: Public Economics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5974

In an international merger or acquisition, the national residences of the acquirer and the target determine to what extent the newly created multinational firm is subject to international double taxation. This paper presents evidence that the parent-subsidiary structure of newly created multinational firms reflects the prospect of international double taxation. The number of acquiring firms at the national level similarly reflects international double taxation. The evidence suggests that tax policy in the form of lower tax rates or the elimination of residence-based worldwide taxation attracts additional parent companies of multinational firms. On the basis of our estimation, we simulate the impact of the elimination of worldwide taxation by the United States on parent firm selection.