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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Ph: +46 8 665 4504
lars.persson@ifn.se

Jonas Vlachos

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Ph: +46 8 16 30 46
Mob: +46 70 893 3240
jonas.vlachos@ne.su.se

An Agenda for Europe

Institutional Reform for Innovation and Entrepreneurship

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The authors of this book, Niklas Elert, Magnus Henrekson and Mikael Stenkula, advise the economies of the European Union to become more entrepreneurial in promoting innovation and economic growth. The authors propose a reform strategy with respect to several aspects to achieve this goal.

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