Essays in business taxation

Todtenhaupt, Maximilian

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URN: urn:nbn:de:bsz:180-madoc-452879
Document Type: Doctoral dissertation
Year of publication: 2018
Place of publication: Mannheim
University: Universität Mannheim
Evaluator: Voget, Johannes
Date of oral examination: 15 May 2018
Publication language: English
Institution: Business School > ABWL insbes. Finance & Accounting (Voget)
Subject: 330 Economics
Subject headings (SWD): Taxation
Keywords (English): Taxation
Abstract: The continuing trend towards globalization has become one of the most decisive forces shaping the environment in which firms operate. Rapid technological progress, the digitalization of production processes and the lifting of trade barriers allow firms to organize production in international value chains, sell products across borders and assign profits to various locations around the globe. This development has substantially changed the way in which firms are affected by corporate taxation. For instance, firms can avoid paying corporate income tax by setting up cross-border structures and shifting income to low-tax locations. These responses to international tax differences are well-documented by the existing literature and should in principle lead to lower tax burdens for multinational firms. On the one hand, lower effective tax payments reduce the sensitivity of corporate decisions with respect to statutory tax rate changes. On the other hand, however, the tax-sensitive organization of multinational groups distorts the corporate structure. Furthermore, multinational firms have been identified as important international transmitters of country-specific shocks. The possibility of profit shifting means that tax changes in one jurisdiction may affect corporate investment decisions in another jurisdiction not only on the extensive but also on the intensive margin. Finally, when establishing cross-border links or expanding within countries, firms do so not only through greenfield investments but increasingly also through mergers and acquisitions (M&As) which made up 49.7% of Foreign Direct Investment (FDI) around the world in 2016.Source: UNCTAD World Investment Report 2017. Fiscal policy that inhibits the efficient allocation of assets, such as the taxation of capital gains, may have adverse effects on the functioning of the market for corporate control. To design an efficient corporate tax system it is crucial to understand the implications of tax policy in the context of a globalized economy. This thesis sheds light on two important issues. First, I study the impact of taxation on both the frequency and the outcome of M&As. Taxation is identified as an important driver of takeover dynamics and as a determinant of productivity gains in cross-border mergers. Second, I explore the cross-border effect of taxation on corporate R&D activity in the context of profit shifting. Tax cuts on income from intellectual property that do not require the establishment of nexus in the corresponding location benefit all firms of a multinational group with an affiliate in this location because income can eventually be shifted there. These tax cuts thus exert a positive cross-border effect on R&D activity. Which fiscal policy emerges in a world where firms operate across borders? Previous studies have argued that an increase in capital mobility eventually leads to a so-called “race to the bottom” because countries compete for internationally mobile firms. Decreasing corporate income tax rates appear to support this line of argument. However, not much is known about how such fiscal competition evolves in the context of growing public debt burdens which have become a relevant feature for many countries after the financial and economic crisis 2008-2009. I address this issue in a theoretical analysis in the final part of this thesis.

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