CORPORATE RESTRUCTURINGS AND TAX AGGRESSIVENESS

Abstract

Objective: verify if companies that engage in business combinations present higher levels of tax aggressiveness, either for the acquirer or the acquiree. Specifically, the study focus on companies that decide to incorporate newly acquired subsidiaries.

Rationale: tax planning is a strategy in order to make the business viable and enhance returns or the competitiveness of a firm. Thus, reducing the tax burden could be an objective in order for firms to engage in business combinations.

Method: the investigation was based on Brazilian companies listed at ‘Brasil, Bolsa, Balcão (B3) that had their registry cancelled by being incorporated by another company. Results were based on panel data regressions with fixed effects (firm and year).

Results: in relation to the acquirer, empirical evidence indicate that there is no effect on their effective tax rates when compared to a control group. On the other hand, results indicate that the effective tax rate for the acquirees are lower in the year preceding the business combination.

Contribution: empirical evidence indicate that the target company may engage in practices of aggressive tax planning in order to become more attractive. On the other hand, despite their level of tax aggressiveness, there is no significant effect on its level for the acquirer company after the business combination. Therefore, results contribute to a better understanding about the dynamics about the level of tax aggressiveness in business combinations.