Papers

1. reduction corporate tax rate from 35% to 21%

2. elimination US repatriation tax

3. GIobal Intangible Low-Taxed Income (GILTI) -> ähnlich zu CFC

4. Foreign-Derived Intangible Income (FDII)

5. BEAT

how does the TCJA of 2017 changed foreign acquisitions by US firms?

1. reduction federal statutory corporate income tax -> (+) more foreign M&A due to higher after-tax CF in US (more cash left)

2. elimination of US repatriation tax -> ambivalent results

   -> (+) US firms are no longer tax disadvantaged compared to other owner of foreign firms -> more foreign M&A

   -> (-) lock-out-effect disappears -> repatriation cheaper (opportunity cost of reinvestment abroad rise) -> fewer deals (especially these with lower value creation)

3. GILTI -> (-) minimum taxation of foreign excess returns in low-tax countries discourage M&A by US corporations -> fewer M&A of highly profitable companies in low-tax countries

4. FDII -> (-) preferential tax rate on excess returns generated from US exports -> less outbound M&A

probability of a foreign target acquired by a US company decreases bei 3.5-4.5 percentage points

-> detailed results:

1. declining M&A of highly profitable targets in low-tax countries -> GILTI

2. US firms with high untaxed foreign earnings are less active abroad -> tend to avoid low-growth rate targets abroad -> elimination of repatriation tax

3. proportion of cash deals in US foreign acquisition is rising -> reduction federal statutory income tax

4. purely US-domestic firms are more likely to acquire a foreign target for the first time -> reduction of federal statutory income tax

5. US companies with non-investment grade ratings increasing their foreign M&A activity -> reduction federal statutory income tax

6. US targets (particularly with locked out earnings) are more likely to be acquired by US firms than foreign buyers -> switch to quasi-territorial tax system

1. TCJA biggest reform of US corporate tax in decades -> TCJA was massive and exogenous shock -> possibility to observe firms response

2. transisition from worldwide system to hybrid (quasi territorial) -> understanding firm behavior

3. study examines whether TCJA reduces distortion and improves capital allocation

TCJA only in US, no immediate comparable reforms by most important US trading partners -> pre-post-comparision possible

2 empirical setups:

1. target-level analysis

2. acquirer-level analysis

target country (selling-side):

1. corporate / personel capital gains -> influence deal probability

2. corporate tax level

3. patent-box countries (less strict rules / nexus -> more M&A activities)

4. dividend withholding taxes for foreign shareholders

acquirer side:

1. repatriation tax

all potential acquirers of a target (regardless their country of origin) are subject to the same tax treatment -> most efficient owner wins

(before TCJA capital ownership neutrality wasn’t the case -> 35% corporate tax level + worldwide tax system + repatriation taxes)

1. increasing acquisition of US firms by foreign buyers

2. US firms are disproportionately targets not acquirers

3. US firms are at a disadvantage in the bidding process for foreign targets

4. incentive to hold money abroad (locked out cash)

1. only short-term initial effects (until 2019)

2. despite cross-section it’s impossible to perfectly seperate the effect -> TCJA was a bundled reform

3. only consideration of the likelihood of acquistion, no consideration of deal value

examination of the real economic effects that manadatory private CbCR on MNEs in terms of

• capital investment

• labor investment

• organizational structure & complexity

1. capital and labor investment in Europe by MNEs (with manadatory CbCR) are rising moderatly faster than those of the control group

2. stronger reaction of investments in europen countries with preferential tax regimes

   -> increased capital and labor investment

3. no change of overall level of investment -> CbCR leads primarily to a redistribution of capital and labor across countries (just shifting to place substance to value creation)

4. reduced level of complexity -> reduced number of subsidiaries, particularly in european preferential regimes and tax havens

5. lager capital than labor investment for MNEs with greater tax avoidance

1. examines real effects on private disclosure (capital investment, labor investment and organisational structure)

2. examines the role of tax authorities in as monitor -> evidence that additional information strengthens the monitoring functions

1. CbCR has real side effects -> regulation not only changes income shifting, but also location decisions and organizational structures

2. possible unintended distributional effects of private CbCR -> winners of CbCR are countries with preferential regimes (attract additional real substance) -> risk of race to the bottom (other countries are pressurized to improve their system)

3. implication for future transperency measures -> already effects from private CbCR, public CbCR could trigger even stronger effects

2 different complementary designs:

1. difference in difference analysis

2. regression discontinuity design

• previous papers analyze primarily pure tax effects of CbCR

-> this paper focuses on real investments (capital and labor) and location selection rather than pure tax effects

-> also detailed analysis of organizational structure

1. more information for tax authorities-> easier to identify profit-to-substance mismatches

2. real adjustments instead of simply adjusting transfer pricing -> substance serve as justification for value creation

3. reputation/leak risks -> companies don’t want to appear to aggressive

1. short-term perspective, long-term effects are not taken into account

2. orbis coverage -> no coverage of subsidiaries outside of EU

3. parallel reforms (BEPS implementation, EU state aid, leaks etc.)

   -> hard to disentangle what are the real reasons behind the shifts

4. generalizibility -> transfer of the results to public CbCR or smaller companies is only to a limited extent