Impact of controlled foreign corporation rules on post-acquisition investment and profit shifting in targets


Hagen, Dominik von ; Harendt, Christoph


[img]
Preview
PDF
dp17062.pdf - Published

Download (927kB)

URL: https://ub-madoc.bib.uni-mannheim.de/43816
URN: urn:nbn:de:bsz:180-madoc-438162
Document Type: Working paper
Year of publication: 2017
The title of a journal, publication series: ZEW Discussion Papers
Volume: 17-062
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL u. Betriebswirtschaftliche Steuerlehre (Schreiber)
Sonstige Einrichtungen > Zentrum für Europ. Wirtschaftsforschung (ZEW)
MADOC publication series: Veröffentlichungen des ZEW (Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: F23 , G34 , H25 , H26 , H32 , H73,
Keywords (English): International taxation , CFC rules , profit shifting , multinational entities , crossborder mergers and acquisitions , foreign direct investment
Abstract: We investigate real investment, financial revenues and profits in formerly domestic firms once they enter a multinational entity (MNE) through an acquisition. We argue that following the acquisition, those targets are tax-optimized in a profit shifting context if they are acquired by MNEs with no controlled foreign corporation (CFC) rules in their headquarters’ countries. In this case, we hypothesize that MNE-wide profit shifting opportunities decrease high-tax targets’ cost of capital, which may have a positive effect on real investment of these targets. In addition, we hypothesize that financial revenues respectively profits of low-tax targets increase after the acquisition, since they may become destinations of profit shifting themselves. In line with the effects on real investment, profits of high-tax targets should decline. We find evidence for the effects on real investment. Further, these effects can no longer be observed in case of existing CFC rules in the acquirer’s headquarters’ country. This finding may suggest that CFC rules effectively mitigate MNE-wide profit shifting which in turn has detrimental investment effects. We also find some evidence for the expected effects for financial revenues but not for the profit measure.

Dieser Eintrag ist Teil der Universitätsbibliographie.

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




+ Export and Citation


Choose a citation style.

+ Search Authors in

+ Download Statistics

Downloads per month over past year

View more statistics



You have found an error? Please let us know about your desired correction here: E-Mail


Actions (login required)

Show item Show item