Do U.S. Firms Disguise Acquisitions to Avoid Taxes?

56 Pages Posted: 2 Jun 2015 Last revised: 22 Jul 2020

See all articles by Jeremiah Harris

Jeremiah Harris

Kent State University - College of Business Administration

William O'Brien

University of Illinois at Chicago

Date Written: July 17, 2020

Abstract

Our study finds evidence consistent with U.S. multinational firms disguising domestic acquisitions as corporate reorganizations to avoid repatriation-related taxes. Prior to a 2017 tax reform, we find that a combination of high potential repatriation costs and large overseas earnings balances is positively associated with domestic acquisition volume, but only in deals with low visibility to regulators and investors. Consistent with a repatriation of overseas cash, these firms’ low visibility acquisitions (but not their higher-visibility counterparts) are associated with 4-7% lower overseas earnings balances. After the 2017 reform reduced the need for this tax-free repatriation technique, our tests find that the positive relationship between low visibility acquisitions, repatriation costs, and overseas earnings disappears or even reverses, despite the reform lowering the cost of investing foreign earnings in the U.S. Our results suggest that these “pseudo-reorganization” acquisitions were used to a greater extent than previously known.

Keywords: Acquisitions; Repatriation; Taxes

JEL Classification: F23; G34; G38; H21; H26

Suggested Citation

Harris, Jeremiah and O'Brien, William, Do U.S. Firms Disguise Acquisitions to Avoid Taxes? (July 17, 2020). Available at SSRN: https://ssrn.com/abstract=2613016 or http://dx.doi.org/10.2139/ssrn.2613016

Jeremiah Harris (Contact Author)

Kent State University - College of Business Administration ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States

William O'Brien

University of Illinois at Chicago ( email )

601 S. Morgan St.
Chicago, IL 60607
United States

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