Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases

Huizinga, Harry; Voget, Johannes; Wagner, Wolf

doi:10.2139/ssrn.2127609

Cited by 4 publications

(5 citation statements)

References 35 publications

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“…Ayers et al (2003) show a positive relation between the takeover premium and capital gains taxation at the level of the selling individual shareholder. Huizinga et al (2017) show that future capital gains taxation at the acquirer individual shareholder level negatively affects the takeover premium with an increasing tax rate differential between acquirer and seller capital gains taxation.…”

Section: Variation In Taxation Systemsmentioning

confidence: 87%

International Taxation and M&A Prices

Hagen

Pönnighaus

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. http://ftp.zew.de/pub/zew-docs/dp/dp17040.pdf Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar. Terms of use: Documents inDis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Abstract: We show that corporate taxation systems regarding foreign dividends and capital gains across 49 countries differ in many aspects, contradicting the requirements for capital ownership neutrality and indicating that ownership patterns are distorted. Consequently, a national tax policy maker may ask which taxation system improves the position of its multinational entreprises in bidding for foreign targets. To address this question, we develop a theoretical model on the impact of foreign dividends and capital gains taxation on cross-border M&A prices from the acquirer's perspective and theoretically compare different taxation systems. In a next step, we empirically validate our model in a regression analysis on a large cross-border M&A data set. Based on this analysis, we find that foreign dividends taxation rather than capital gains taxation impacts M&A prices. Finally, we provide tax policy suggestions. International Taxation and M&A Prices

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Section: Variation In Taxation Systemsmentioning

confidence: 87%

International Taxation and M&A Prices

Hagen

Pönnighaus

2017

SSRN Journal

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“…This indicates a smaller lock-in effect in case of the sequential vis-a-vis the one-shot full acquisition. 22 In addition, the insurance effect inherent to equity finance in case of the one-shot full acquisition provides an extra incentive for the use of equity, which further increases the sensitivity of the financial choice under the one-shot full acquisition.…”

Section: Hypothesis IImentioning

confidence: 99%

The Role of Toeholds and Capital Gains Taxes for Corporate Acquisition Strategies

Liberini¹,

Russo²,

Stimmelmayr³

2016

SSRN Journal

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“…Similarly, Edwards et al (2016) find that firms with high amounts of locked-out cash engage in less profitable M&A. Further, several studies show distortions on M&A activity due to capital gains taxes, which are additional transaction costs for the seller (e.g., Ayers et al 2003Ayers et al , 2007Ohrn and Seegert 2019;Todtenhaupt et al 2020;Huizinga et al 2018).…”

Section: Introductionmentioning

confidence: 99%

“…Second, we contribute to empirical research in the field of M&A and their taxrelated determinants. Indeed, there are many empirical studies on the effect of tax regulations on M&A from various perspectives, for example, repatriation taxes (Hanlon et al 2015;Edwards et al 2016;Feld et al 2016;Bird et al 2017), international double taxation (Huizinga and Voget 2009;Huizinga et al 2012;von Hagen and Pönnighaus 2017) or capital gains taxation (Ayers et al 2003(Ayers et al , 2007Todtenhaupt et al 2020;Huizinga et al 2018). However, besides Voget (2011), our study is the first one that compares the effect of the increasingly important CFC rule on cross-border M&A activity.…”

Section: Introductionmentioning

confidence: 99%

Multinational ownership patterns and anti-tax avoidance legislation

Prettl

Hagen

2022

Int Tax Public Finance

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We investigate whether controlled foreign corporation (CFC) rules influence cross-border merger and acquisition (M&A) activity on a global scale. CFC rules are one main anti-tax avoidance measure and potentially lead to immediate taxation of foreign subsidiaries’ income at parent level. Analyzing a large M&A data set and detailed self-compiled CFC rule data from 27 countries using two different econometric perspectives, we show if and how CFC rules distort firm behavior and ownership patterns. First, we find that the probability of being the acquirer of a low-tax target decreases if CFC rules may be applicable to this target’s income. Second, we show that CFC rules alter an acquirer’s choice of targets’ location. Altogether, our study shows that for affected acquirer countries, CFC rules lead to less M&A activity in low-tax countries due to potentially reduced incentives to shift income. However, these effects appear to be rather small in size and decrease over time. Thus, our study suggests that CFC rules do not substantially bias the market for corporate control as lobby groups partially claim and policy makers can be confident in reaching their goals of diminishing profit shifting with this increasingly important anti-tax avoidance rule.

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Capital Gains Taxation and the Cost of Capital: Evidence from Unanticipated Cross-Border Transfers of Tax Bases

Cited by 4 publications

References 35 publications

International Taxation and M&A Prices

International Taxation and M&A Prices

The Role of Toeholds and Capital Gains Taxes for Corporate Acquisition Strategies

Multinational ownership patterns and anti-tax avoidance legislation

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