How Corporate Tax Systems Affect Cross-Border M&A Prices

There were more than $1 trillion worth of cross-border mergers and acquisitions in 2016, according to the United Nations Conference on Trade and Development, making them a prominent form of foreign direct investment and an important way for multinational entities (MNEs) to invest and restructure. When MNEs from various countries bid for a foreign target, each country’s system for taxing foreign dividends and capital gains affects deal prices and may determine who wins the bid.

A big question in the theoretical tax literature on capital ownership neutrality (CON) has been how to neutrally tax M&A (e.g., Desai and Hines (2003), … Read more