Dodging Repatriation Tax: Evidence from the Domestic Mergers and Acquisitions Market

Abstract

U.S. multinational corporations (MNCs) pay taxes upon repatriation of foreign earnings. This paper investigates whether MNCs facing higher repatriation tax costs are more likely to engage in tax avoidance strategies involving domestic acquisitions. We find that MNCs with higher levels of repatriation tax costs are more likely to engage in both domestic and foreign acquisitions. Furthermore, the positive association between repatriation tax costs and the likelihood of domestic acquisitions is driven by stock-financed acquisitions, and strong corporate governance strengthens this positive relationship. Our findings suggest that domestic acquisitions are a prevalent way for MNCs to access cash trapped overseas.

Keywords: multinational corporations, repatriation, Tax, M&A