Corporate tax regime and international allocation of ownership
Becker J., Runkel M.
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 in which firms consider acquisitions of already existing target firms in a high-tax country and a low-tax country. 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 one country and inefficiently low in the other country. If both countries engage in tax competition, a novel externality arises that, under symmetry, aggravates the underprovision of public goods under both corporate tax regimes. © 2012 Elsevier B.V.
Corporate taxation; Formula apportionment; Separate accounting