Tax Considerations and Merger Activity in National and International Context: Empirical Evidence from the Czech Republic
Tax Considerations and Merger Activity in National and International Context: Empirical Evidence from the Czech Republic

Author(s): Oleksandra Lemeshko, Petr Valouch
Subject(s): Evaluation research, Public Finances, Fiscal Politics / Budgeting
Published by: Masarykova univerzita nakladatelství
Keywords: tax policy; merger; double taxation; tax savings; tax costs;
Summary/Abstract: Being closely interconnected with method of payment and structure of the deal, tax policies determine the scope of financial synergies from mergers. Majority of current tax regimes impose a significant burden on domestic firms earning foreign income. One of its major components is double taxation, which in combination with other tax issues significantly distorts ownership patterns and reduces cross-border and domestic investment flows. An exemption of foreign income and shareholder income from taxation helps to promote social welfare, although not to the global optimum. There is positive significant correlation between international tax rates and the probability of choosing a location for an affiliate of a multinational firm for both green field investment cross-border mergers. The latter react less strongly to high tax rates than greenfield investments.

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