2006–2010

Cross-Border Acquisitions and Taxes: Efficiency and Tax Revenues

Reprint No. 2009:40

Author(s): Pehr-Johan Norbäck, Lars Persson and Jonas VlachosYear: 2009 Title: Canadian Journal of Economics Volume (No.): 42 (4) Pages: 1473–1500
Online article (restrictions may apply)


We develop a theoretical oligopoly model to study how international differences in profit and capital gains taxes affect foreign acquisitions. Reductions in foreign profit taxes tend to trigger inefficient foreign acquisitions, while reductions in foreign capital gains taxes may trigger efficient foreign acquisitions. Foreign acquisitions can increase domestic tax revenues even when profit taxes are evaded. The reason is that bidding competition between foreign firms ensures that all benefits from the acquisition, including tax advantages, are captured by a domestic seller paying capital gains taxes. Tax code issues, such as the treatment of goodwill, are shown to affect the pattern of foreign acquisitions.


Reference:
Norbäck, Pehr-Johan, Lars Persson and Jonas Vlachos (2009), "Cross-Border Acquisitions and Taxes: Efficiency and Tax Revenues". Canadian Journal of Economics 42(4), 1473–1500.

Pehr-Johan Norbäck

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Lars Persson

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lars.persson@ifn.se

Interdisciplinary European Studies

The European Union and the Return of the Nation State

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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