Cambridge Business Association
Taxing Away M&A
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Taxing Away M&A

The Effect of Corporate Capital Gains Taxes on Acquisition Activity

Lars P. Feld, Martin Ruf, Ulrich Schreiber, Maximilian Todtenhaupt and Johannes Voget
CESifo Group Munich, 2016
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Recommendation

Would taxing corporate capital gains at a lower rate generate more mergers and acquisitions? It appears so, according to academics Lars P. Feld, Martin Ruf, Ulrich Schreiber, Maximilian Todtenhaupt and Johannes Voget. Their original study of M&A in 30 countries finds that every one-percentage-point reduction in a nation’s corporate capital gains tax rate generates an incremental 1.1% of merger activity annually. Thus, the authors call for a reduction in the corporate capital gains tax, particularly in countries with high rates, to unlock economic productivity and growth. getAbstract recommends this informative and scholarly read to tax experts, business managers and tax policy makers.

Summary

Evidence suggests that a vibrant mergers and acquisitions market adds to an economy’s productivity, knowledge transfer and efficiency. In nations that impose capital gains taxes on M&A activity, a corporate seller could incur a capital gains tax liability, resulting in that seller likely holding out for a higher sales price to compensate for the payment. Alas, such deals could become costly and thus less appealing to acquirers, so much so that transactions could fail to occur.

According to a study of corporate...

About the Authors

Lars P. Feld is a professor at the University of Freiburg. Martin Ruf is a professor at the University of Tubingen. Ulrich Schreiber and Johannes Voget are professors at the University of Mannheim, where Maximilian Todtenhaupt is a research assistant.

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