Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases

Harry Huizinga, Johannes Voget () and Wolf Wagner ()
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Johannes Voget: University of Mannheim, Oxford University Centre for Business Taxation,CentER Tilburg University

Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: In a cross-border takeover, the tax base associated with future capital gains is transferred from target shareholders to acquirer shareholders. Crosscountry differences in capital gains tax rates enable us to estimate the discount in target valuation on account of future capital gains. A one percentage point increase in the capital gains tax rate reduces the value of equity by 0.225%. The implied average effective tax rate on capital gains is 7% and it raises the cost of capital by 5.3% of its no-tax level. This indicates that capital gains taxation is a significant cost to firms when issuing new equity.

Keywords: Capital gains taxation; Cost of capital; International takeovers (search for similar items in EconPapers)
JEL-codes: G32 G34 H25 (search for similar items in EconPapers)
Date: 2012-09-27
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Capital gains taxation and the cost of capital: Evidence from unanticipated cross-border transfers of tax base (2018)
Working Paper: Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases (2012)
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