Tax Avoidance through Cross-Border Mergers and Acquisitions

Abstract

We investigate 13,458 cross-border, tax-haven mergers and acquisitions (M&A) from 1990 to 2017, totaling $4.2 trillion in deal value. These M&A result in $32.9 billion in recurring annual tax avoidance. $2.4 trillion of haven M&A is beyond what is predicted based on a gravity model with economic fundamentals. Moreover, we improve the measurement of a key data item in tax research–a firm’s tax residence–through a novel algorithm that embeds the residency laws of 150 countries and the associated tie-breaking provisions. We reassign the tax residence of a considerable fraction of firms relative to standard assignments.

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