U.S. multinational corporations (MNCs) hoard approximately $2 trillion in cash, the majority of which is kept overseas, and are required to pay U.S. corporate income taxes upon repatriation of foreign earnings earned in lower tax jurisdictions. New research provides evidence that MNCs facing higher repatriation tax costs are more likely to engage in acquisitions of both U.S. targets and foreign targets.
In this edition of Smith Business Close-Up with the University of Maryland’s Robert H. Smith School of Business, host Jeff Salkin sits down with Emanuel Zur to talk about his research findings, which delve into the issue of corporate tax loopholes.
Zur, an assistant professor of accounting and information assurance, found that an estimated $12 billion of foreign income is brought back to the U.S. ever year through the use of tax loopholes through sophisticated M&A tax strategies. Acquiring foreign targets is a legal way for U.S. companies to use their foreign trapped cash, but there are other loopholes. Zur’s research results suggest that multinational corporations are strategically structuring M&A deals to avoid repatriation tax costs and that domestic acquisitions are a prevalent channel for these firms to consume cash trapped overseas.
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