Working Paper No. 663

Cross-Border Acquisitions and Corporate Taxes: Efficiency and Tax Revenues

Published: March 9, 2006Pages: 36Keywords: Tax Competition; Ownership; Tax Revenues; FDI; M&AsJEL-codes: F23

Cross-Border Acquisitions and Corporate Taxes: Efficiency and Tax Revenues Pehr-Johan Norbäck, Lars Persson and Jonas Vlachos


We find that reduced foreign corporate taxes may lead to inefficient foreign acquisitions if complementarities between foreign and domestic assets are low, and to efficient foreign acquisitions if such complementarities are high. Moreover, with large complementarities, foreign acquisitions can increase domestic tax revenues. The reason is that in the bidding competition between the foreign firms, all benefits from the acquisition, including tax advantages and evaded taxes, are competed away and captured by the domestic seller which, in turn, pays capital gains tax on the proceeds. Technical issues in the tax code, such as the treatment of goodwill deductibility, is also shown to crucially affect the pattern of foreign acquisitions.

Pehr-Johan Norbäck

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Lars Persson

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lars.persson@ifn.se

Jonas Vlachos

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jonas.vlachos@ne.su.se

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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