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

Abstract In the context of the OECD’s reform of international taxation, the paper quantifies the impact of the global minimum corporate tax rate on large multinational cross-border mergers and acquisitions. Within a gravity model specification, it examines how differences in capital taxation may drive bilateral cross-border mergers and acquisitions, taking into account both the direct and indirect distortionary effects of taxes. The empirical exercise exploits a large purpose-built dataset comprising 13,562 investor-firm M&As data points from 2001 to 2020, in (at the 516 4-digit level) industries times 109 “source” countries, matched with 559 (also at the 4-digit) industries times 161 “target” countries. In line with a simple theoretical model underpinning the mechanisms of transmission, the empirical results suggest that M&As flows are higher when the source and target countries have closer tax rates. Next, whenever the target country’s corporate tax rate is lower than 15%, the gravity model estimates the impact of the 15% global minimum tax rate on cross-border investments by firms whose revenue exceeds the €750 millions threshold. The simulation shows that the overall effect of the global minimum corporate tax on M&As flows would be negative, but small in magnitude. Less developed economies would be comparatively the most affected area. As a percentage of expected flows, developing countries would experience the largest decrease. In absolute terms, the biggest decrease in outflow investments would be among OECD countries, while the biggest drop in inflow investments would be among high-income non-OECD countries.