Working Paper: CEPR ID: DP5974
Authors: Harry Huizinga; Johannes Voget
Abstract: In an international merger or acquisition, the national residences of the acquirer and the target determine to what extent the newly created multinational firm is subject to international double taxation. This paper presents evidence that the parent-subsidiary structure of newly created multinational firms reflects the prospect of international double taxation. The number of acquiring firms at the national level similarly reflects international double taxation. The evidence suggests that tax policy in the form of lower tax rates or the elimination of residence-based worldwide taxation attracts additional parent companies of multinational firms. On the basis of our estimation, we simulate the impact of the elimination of worldwide taxation by the United States on parent firm selection.
Keywords: International taxation; mergers and acquisitions
JEL Codes: F23; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Corporate tax rates (H25) | likelihood of firms choosing that country as a parent location (F23) |
| Abolishing worldwide taxation in the U.S. (H26) | proportion of firms selecting the U.S. as a parent country (F23) |
| Double tax rate increase (H29) | probability of a country being the acquiring entity (F23) |