TAXING FOREIGN PROFITS WITH INTERNATIONAL MERGERS AND ACQUISITIONS

Becker J, Fuest C


Abstract
A large part of border crossing investment takes the form of international mergers and acquisitions. In this article, we ask how optimal repatriation tax systems look like in a world where investment involves a change of ownership, instead of a reallocation of real capital. We find that the standard results of international taxation do not carry over to the case of international mergers and acquisitions. The deduction system is no longer optimal from a national perspective and the foreign tax credit system fails to ensure global optimality. The tax exemption system is optimal if ownership advantage is a public good within the multinational firm. However, the cross-border cash-flow tax system dominates the exemption system in terms of optimality properties.

Keywords
investment-income optimal taxation capital income old rules policy reform competition realities



Publication type
Article in Journal

Publication status
Published

Year
2010

Journal
INTERNATIONAL ECONOMIC REVIEW

Volume
51

Issue
1

Start page
171

End page
186

Pages range
171-186

Language
English

ISSN
0020-6598

Affiliation
Max Planck Inst Intellectual Property Competit &, Max Planck Inst Intellectual Property Competit &, Univ Oxford