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International Taxation and Cross-Border Banking

Author

Listed:
  • Harry Huizinga

    (CentER and EBC, Tilburg University and CEPR)

  • Johannes Voget
  • Wolf Wagner

    (CentER and EBC, Tilburg University, Duisenberg School of Finance)

Abstract

In a cross-border takeover, the tax base associated with future capital gains is transferred from target shareholders to acquirer shareholders. Crosscountry differences in capital gains tax rates enable us to estimate the discount in target valuation on account of future capital gains. A one percentage point increase in the capital gains tax rate reduces the value of equity by 0.225%. The implied average effective tax rate on capital gains is 7% and it raises the cost of capital by 5.3% of its no-tax level. This indicates that capital gains taxation is a significant cost to firms when issuing new equity.

Suggested Citation

  • Harry Huizinga & Johannes Voget & Wolf Wagner, 2012. "International Taxation and Cross-Border Banking," Working Papers 1226, Oxford University Centre for Business Taxation.
    • Handle: RePEc:btx:wpaper:1226
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    More about this item

    Keywords

    Capital gains taxation; Cost of capital; International takeovers; Takeover premium;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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