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Chapter 6: Q1 - Critical Thinking Questions (page 136)

Why is the main objective of these cross border mergers, whether the US firm is the acquirer or the company that is acquired, to change the legal domicile of the merged firm from the standpoint of income taxation .

Short Answer

Expert verified

The main objective of US cross border mergers is corporate tax savings by companies, as US corporate taxes rate are the highest.

Step by step solution

01

Basics 

Corporate mergers and takeovers across national borders lead to - shifts of headquarters in other country, or levy of low foreign tax rate for the combined company. It implies lesser tax base for US and lesser corporate tax payment by companies, decreased corporate tax revenue in US.

02

Explanation 

It is an incentive for companies to do so, based on the reason that US corporate tax rate is highest in the entire world.

Example : Burger King made huge tax savings by taking over a Canadian food chain and shifting headquarters there.

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Most popular questions from this chapter

How could the legal expenses incurred in establishing rights to assess remote sales and the costs that states incur in collecting such taxes cut further into dynamic analysis estimates of the net revenue gains to states from implementing the taxes ?

Consider Figure 6-3. Suppose that the government raises its sales tax from 4 percent to 6 percent. Does the direction of the effect on government's tax revenue indicated by the figure's dynamic tax analysis accord with the prediction that would have been forthcoming from static tax analysis? Explain briefly.

Refer to the table in Problem 6-3 when answering the following questions. Show your work, and explain briefly.

a. Does Christino experience progressive, proportional, or regressive taxation?

b. Does Jarius experience progressive, proportional, or regressive taxation?

c. Does Meg experience progressive, proportional,

or regressive taxation?

Distinguish between average tax rates and marginal tax rates.

The British government recently imposed a unit excise tax of about$154 per ticket on airline tickets for flights to or from London airports. In answering the following questions, assume normally shaped demand and supply curves.

a. Use an appropriate diagram to predict the effects of the ticket tax on the market-clearing price of London airline tickets and on the equilibrium number of flights into and out of London.

b. What do you predict is likely to happen to the equilibrium price of tickets for air flights into and out of cities that are in close proximity to London but are not subject to the new ticket tax? Explain your reasoning.
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