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International taxation and M&A prices

Dominik von Hagen and Fabian Nicolas Pönnighaus

No 17-040, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We show that corporate taxation systems regarding foreign dividends and capital gains across 49 countries differ in many aspects, contradicting the requirements for capital ownership neutrality and indicating that ownership patterns are distorted. Consequently, a national tax policy maker may ask which taxation system improves the position of its multinational entreprises in bidding for foreign targets. To address this question, we develop a theoretical model on the impact of foreign dividends and capital gains taxation on cross-border M&A prices from the acquirer's perspective and theoretically compare different taxation systems. In a next step, we empirically validate our model in a regression analysis on a large cross-border M&A data set. Based on this analysis, we find that foreign dividends taxation rather than capital gains taxation impacts M&A prices. Finally, we provide tax policy suggestions.

Keywords: International taxation; Repatriation taxes; Capital gains taxes; Lock-in effect; Multinational entities; Cross-border M&As (search for similar items in EconPapers)
JEL-codes: F23 G34 H25 H26 H32 H73 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-int, nep-pbe and nep-pub
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:17040

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