Source Versus Residence Based Taxation with International Mergers and Acquisitions
34 Pages Posted: 27 Nov 2009
Date Written: November 2009
This paper analyses tax competition and tax coordination in a model where capital flows occur in the form of mergers and acquisitions, rather than greenfield investment. In this framework, we show that differences in residence based taxes do not necessarily distort international ownership patterns. Moreover, tax competition yields globally efficient levels of source based corporate income taxes if residence based taxes on capital income are absent. In contrast, in the presence of residence based taxes on dividends, source based corporate income taxes are inefficiently high. The widespread view that tax coordination is less urgent if residence based taxes are available may therefore be misguided.
Keywords: corporate taxation, tax competition, mergers and acquisitions
JEL Classification: H54, H25, F23
Suggested Citation: Suggested Citation