Who Bears the Burden of International Taxation? Evidence from Cross-Border M&As

Cross-border M&As can trigger additional taxation of the target's income in the form of non-resident dividend withholding taxes and acquirer-country corporate income taxation. This paper finds that this additional international taxation is fully capitalized into lower takeover premiums. In contrast, acquirer excess stock market returns around the bid announcement date do not appear to reflect additional taxation of the target's income. These findings suggest that international taxation is considered to be burdensome and that the incidence of this taxation is primarily on target-firm shareholders.