The United States has the highest statutory corporate income tax rate among developed nations and is the only developed country with both a high statutory corporate income tax rate and a worldwide system of taxation. These features of the US corporate income tax have disadvantaged US businesses in the global market for cross-border M&A.
Most developed countries impose little or no additional tax on the active foreign income of multinational companies. Today the United States is the only developed country with a worldwide system and a corporate income tax rate above 30%. Consequently, foreign companies can afford to bid more for acquisitions in the United States and abroad as compared to US companies.
This report analyzes the cross-border M&A market and how the US corporate income tax has disadvantaged US companies in this market. Differences in statutory corporate income tax rates and the over 25,000 cross-border M&A transactions among the 34 OECD countries are examined in a statistical model over the 2004-2013 period. Transactions with both US and non-US targets and US or non-US acquirers are included.
The EY report finds that a US corporate income tax rate of 25% would have significantly reduced the disadvantages of US companies and would likely have resulted in the United States being a net acquirer in the cross-border M&A market.