Source Versus Residence Based Taxation with International Mergers and Acquisitions

34 Pages Posted: 27 Nov 2009

See all articles by Johannes Becker

Johannes Becker

University of Oxford

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Date Written: November 2009

Abstract

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

Becker, Johannes and Fuest, Clemens, Source Versus Residence Based Taxation with International Mergers and Acquisitions (November 2009). CESifo Working Paper Series No. 2854. Available at SSRN: https://ssrn.com/abstract=1513170

Johannes Becker (Contact Author)

University of Oxford

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

Poschinger Str. 5
Munich, DE 81679
Germany
++89-9224-1430 (Phone)

Ludwig-Maximilians-University, Munich ( email )

Schackstrasse 4 / II
Munich, DE 80539
Germany

Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, DE 80539
Germany
++89 2180-2748 (Phone)
++89 2180-17845 (Fax)

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