Minimum global tax: winners and losers in the race for mergers and acquisitions

In the context of the OECD’s reform of international taxation, the paper quantifies\r\nthe impact of the global minimum corporate tax rate on large multinational crossborder\r\nmergers and acquisitions. Within a gravity model specification, it examines\r\nhow differences in capital taxation may drive bilateral cross-border mergers and\r\nacquisitions, taking into account both the direct and indirect distortionary effects\r\nof taxes. The empirical exercise exploits a large purpose-built dataset comprising\r\n13,562 investor-firm M&As data points from 2001 to 2020, in (at the 516 4-digit\r\nlevel) industries times 109 “source” countries, matched with 559 (also at the 4-digit)\r\nindustries times 161 “target” countries. In line with a simple theoretical model\r\nunderpinning the mechanisms of transmission, the empirical results suggest that\r\nM&As flows are higher when the source and target countries have closer tax rates.\r\nNext, whenever the target country’s corporate tax rate is lower than 15%, the gravity\r\nmodel estimates the impact of the 15% global minimum tax rate on cross-border\r\ninvestments by firms whose revenue exceeds the €750 millions threshold. The simulation\r\nshows that the overall effect of the global minimum corporate tax on M&As\r\nflows would be negative, but small in magnitude. Less developed economies would\r\nbe comparatively the most affected area. As a percentage of expected flows, developing\r\ncountries would experience the largest decrease. In absolute terms, the biggest\r\ndecrease in outflow investments would be among OECD countries, while the biggest\r\ndrop in inflow investments would be among high-income non-OECD countries.