Taxing Foreign Profits with International Mergers and Acquisitions

16 Pages Posted: 1 Mar 2010

See all articles by Johannes Becker

Johannes Becker

affiliation not provided to SSRN

Clemens Fuest

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

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.

Suggested Citation

Becker, Johannes and Fuest, Clemens, Taxing Foreign Profits with International Mergers and Acquisitions. International Economic Review, Vol. 51, Issue 1, pp. 171-186, February 2010. Available at SSRN: https://ssrn.com/abstract=1560175 or http://dx.doi.org/10.1111/j.1468-2354.2009.00575.x

Johannes Becker

affiliation not provided to SSRN ( email )

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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