Corporate tax regime and international allocation of ownership

Johannes Becker and Marco Runkel ()

No 1010, Working Papers from Oxford University Centre for Business Taxation

Abstract: Would the introduction of a corporate tax system with consolidated tax base and formula apportionment lead to socially wasteful mergers and acquisitions across borders? This paper analyzes a two-country model with an international investor considering acquisitions of already existing target firms in a high-tax country and a low-tax country. The investor is able to shift profits from one location to another for tax saving purposes. Two systems of corporate taxation are compared, a system with separate accounting and a system with tax base consolidation and formula apportionment. It is shown that, under separate accounting, the number of acquisitions is inefficiently high in both the high tax and the low tax country. Under formula apportionment, the number of acquisitions is inefficiently high in the low tax country and inefficiently low in the high tax country. Under tax competition, a novel externality arises that worsens the efficiency properties of equilibrium tax rates under separate accounting, but may play an efficiency enhancing role under formula apportionment.

Keywords: Corporate Taxation; Separate Accounting; Formula Apportionment (search for similar items in EconPapers)
JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-acc and nep-pbe
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Related works:
Journal Article: Corporate tax regime and international allocation of ownership (2013)
Working Paper: Corporate tax regime and international allocation of ownership (2010)
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