Section of Taxation Publications

VOL. 62
NO. 2
Winter 2009

Contents | TTL Home


Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.


Catherine A. Clancy

A Role for Tax Attorneys in Antitrust Law?: Variable-Cost Tax Savings as a Merger Efficiency Defense

A merger efficiency defense should be permitted for variable-cost tax savings under United States, European Union, and Canadian antitrust law. Mergers in the United States, the European Union, and Canada must be approved, based on a showing that the efficiencies from the merger outweigh potential anticompetitive effects in the relevant market. No countries with antitrust regimes specifically permit firms to introduce tax savings as a merger defense. One of the reasons for that position is that tax savings do not increase overall efficiency; rather, they are merely a transfer of resources. However, certain tax efficiencies from mergers—including revenue-tax, profit-tax, and input-tax savings—qualify as variable-cost savings, which induce firms to decrease prices and increase production to the profit-maximizing level. Consequently, consumers and producers are likely to benefit from a merger resulting in revenue- tax, profit-tax, and input-tax savings.

Furthermore, because of the potential for a decrease in consumer prices and an increase in production to increase revenue generated from such goods, governments may receive a net benefit from increased sales tax or value-added tax (VAT) revenue. Therefore, revenue-tax, profit-tax, and input-tax savings may result in real efficiency savings rather than a mere transfer.

The purpose of this Comment is to lay the theoretical foundation for allowing consideration of variable-cost tax savings in merger efficiency analysis. There may be problems of proof because this Comment does not provide examples of actual mergers that saved variable-cost taxes and led to lower consumer prices; however, such practical issues will be left to another article. Part I of this Comment defines variable-cost and fixed-cost tax savings and discusses the economic implications of variable-cost tax savings from mergers. Part I also addresses objections to allowing variable-cost tax savings as a merger efficiency defense. Part II describes various types of taxes relevant to corporations and identifies tax savings that can be achieved from mergers. Part III argues that variable-cost tax savings should qualify as a merger efficiency defense under merger antitrust law in the United States, the European Union, and Canada.


Published by the
American Bar Association Section of Taxation
in Collaboration with the
Georgetown University Law Center


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