Tax Avoidance through Cross-Border Mergers and Acquisitions

Tax Avoidance through Cross-Border Mergers and Acquisitions

Authors

Jean-Marie Meier

University of Texas at Dallas

Jake Smith

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Abstract:

We investigate 13,307 cross-border, tax-haven mergers and acquisitions (M&A) from 1990 to 2017, totaling $4.1 trillion in deal value, or about 30% of total cross-border M&A volume. $2.4 of the $4.1 trillion is beyond what is predicted based on a gravity model with economic fundamentals. Tax-haven M&A result in $30.7 billion in recurring annual tax avoidance. To illustrate the magnitude, for a US firm with no prior cross-border, tax-haven M&A history, buying an Irish firm worth 5% of its total assets would result in an expected decline in its eective tax rate of 3.32 percentage points. For identification, we use a change in US tax law in 2004. Following haven acquisitions,firms are more likely to relocate their headquarters to havens. Our results document that tax avoidance through havens is a significant determinant of cross-border M&A.