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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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Editorial Rating

7

Qualities

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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.

Take-Aways

  • Companies may retreat from mergers and acquisitions since they will have to pay taxes on capital gains they incur.
  • A study shows that every one-percentage-point decline in the capital gains tax rate increases the number of M&A deals, as well as the total value of acquisition activity, by 1.1% annually.
  • Australia, Japan and the United States currently impose the full corporate tax rate on capital gains, while Canada and Portugal apply tax on only part of the gain. New Zealand completely spares M&A capital gains from taxation.

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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