Tax Avoidance through Cross-Border Mergers and Acquisitions
76 Pages Posted: 9 Jul 2020 Last revised: 17 Feb 2021
Date Written: June 30, 2020
We document a novel tax avoidance strategy: cross-border, tax-haven mergers and acquisitions (M&A). Tax havens have $2.4 trillion in M&A deal value beyond what is predicted based on economic fundamentals. Cross-border, tax-haven M&A results in $30.6 billion in tax avoidance annually, and cross-border, non-haven M&A results in an additional $35.8 billion in annual tax avoidance. This is the first paper to document that tax havens affect real investment on a large scale, and not just capital flows on paper. Moreover, we create an algorithm to derive the tax residence of any company given data on the firm's country of incorporation and headquarters.
Keywords: tax avoidance, tax havens, mergers and acquisitions, gravity model, capital flows, foreign direct investment, taxation, multinational corporations
JEL Classification: F21, G34, H25, H26, H73, K34
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