Suppose there are two companies, one of which buys the second company's product as a resource to generate income. Now, that transaction would often require a payment of VAT tax (I assume there are situations where the VAT refund is not possible or acquiring it is actually costly in itself). Now, if the two companies were to merge, the transaction would turn into internal operation, not subject to taxation. The difference would become the revenue of the company resulting from the fusion.

Is that reasoning correct? If so, does the existence of VAT really lead to company mergers or make the operation of big corporations more economical?

  • $\begingroup$ What makes you think the VAT refund might not be possible or have a significant cost? The whole design of VAT is predicated on refunds of tax paid on inputs (hence value added tax) and a company which could not process this would soon be outcompeted by those who could. $\endgroup$ – Henry Feb 16 '18 at 16:25

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