Tax Avoidance through Cross-Border Mergers and Acquisitions

Abstract

We investigate cross-border, tax-haven mergers and acquisitions (M&A) using hand-collected data on tax residence laws and a novel algorithm that derives the tax residence of any company. 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 $29.8 billion in tax avoidance annually, and cross-border, non-haven M&A results in an additional $34.1 billion in annual tax avoidance. While tax havens are known as custodians and intermediaries of assets, this is the first paper to document that havens affect the ultimate ownership of assets on a large scale.

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