International Taxation and M&A Prices

39 Pages Posted: 1 Jul 2017 Last revised: 30 Oct 2017

See all articles by Dominik von Hagen

Dominik von Hagen

University of Mannheim - Department of Business Administration and Taxation

Fabian Pönnighaus

University of Mannheim - Accounting and Taxation

Date Written: October 23, 2017

Abstract

We show that corporate taxation systems regarding foreign dividends and capital gains across 49 countries differ in many aspects, contradicting the requirements for capital ownership neutrality and indicating that ownership patterns are distorted. Consequently, a national tax policy maker may ask which taxation system improves the position of its multinational entreprises in bidding for foreign targets. To address this question, we develop a theoretical model on the impact of foreign dividends and capital gains taxation on cross-border M&A prices from the acquirer’s perspective and theoretically compare different taxation systems. In a next step, we empirically validate our model in a regression analysis on a large cross-border M&A data set. Based on this analysis, we find that foreign dividends taxation rather than capital gains taxation impacts M&A prices. Finally, we provide tax policy suggestions.

Keywords: International taxation, Repatriation taxes, Capital gains taxes, Lock-in effect, Multinational entities, Cross-border M&As

JEL Classification: F23, G34, H25, H26, H32, H73

Suggested Citation

von Hagen, Dominik and Pönnighaus, Fabian, International Taxation and M&A Prices (October 23, 2017). Available at SSRN: https://ssrn.com/abstract=2995051 or http://dx.doi.org/10.2139/ssrn.2995051

Dominik Von Hagen (Contact Author)

University of Mannheim - Department of Business Administration and Taxation ( email )

D-68131 Mannheim
Germany

Fabian Pönnighaus

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

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