The Tax Cuts and Jobs Act (TCJA) of 2017 marked a significant change in
U.S. domestic and international tax policy, altering incentives for U.S.
firms to own foreign assets. We examine the initial response of U.S.
firms’ foreign acquisition patterns to the TCJA’s key reform provisions.
We find a significant overall decrease in the probability that a
foreign target is acquired by a U.S. firm after the reform, suggesting
that the net effect of the TCJA was to reduce investment abroad.
Cross-sectional variation across target and acquirer characteristics
points to the elimination of the repatriation tax and the TCJA’s Global
Intangible Low-Taxed Income (GILTI) regime as playing a critical role in
influencing cross-border acquisitions by U.S. firms. Specifically, U.S.
acquirers with little foreign presence prior to the TCJA are more
likely to acquire a foreign target, while U.S. acquirers are less likely
to acquire profitable targets in low-tax countries. Results from our
empirical analyses are consistent with the TCJA prompting fewer but more
value-enhancing, less tax-motivated, foreign M&A deals by U.S.
|Series||WU International Taxation Research Paper Series|
- WU International Taxation Research Paper Series
- tax reform
- repatriation taxes
- international tax