International taxation and the potential of cross‐border mergers for optimal profit repatriation

Abstract

AbstractThe article aims to investigate the use of cross‐border mergers in worldwide constellations as a strategy for receiving tax‐optimized profit repatriation from foreign subsidiaries. The study is carried out on the basis of an exemplary case study of a cross‐border merger. Moreover, theoretical, analytical, and conceptual research methods used. The findings and implications are of general interest, since a cross‐border merger is in principle possible worldwide and not only in certain country constellations. Generally, the results of the study apply to any cross‐border merger, for example, also to a merger of any EU corporation into a foreign parent company irrespective of its residence. The results show that multinational firms can use cross‐border mergers as a stable strategy to obtain tax‐optimized profit repatriation from foreign subsidiaries and to optimize the group tax rate. This general strategy worked out in the article solves an essential and widespread problem for investments in foreign subsidiaries, namely how to repatriate the retained profits of foreign subsidiaries without triggering an excessive tax burden. A comparable strategy has not yet been found or developed in the literature. Consequently, there is no literature on the possibility of using cross‐border reorganizations as a strategy for a tax‐optimized repatriation of profits.