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Where will they go if we go territorial? Dividend exemption and the location decisions of U.S. multinational corporations

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  • Rosanne Altshuler

    ()
    (Rutgers University, Department of Economics)

  • Harry Grubert

    ()
    (U.S. Treasury Department)

Abstract

We approach the question of how moving to a dividend exemption system would affect the location incentives of U.S. corporations from three different angles. We start by comparing the U.S. allocation of foreign direct investment in manufacturing across low-tax versus high-tax jurisdictions with that of two major dividend exemption countries, Germany and Canada. The second section demonstrates how the effective tax rate on the typical investment in a low-tax affiliate would change under a dividend exemption system. The final approach uses data from the tax returns of U.S. multinationals to gauge how location decisions will be affected. Taken together, the analysis provides no consistent or definitive evidence that location decisions would be significantly changed if dividends were to be exempt from U.S. corporate tax.

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200201.

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Date of creation: 27 Jan 2002
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Handle: RePEc:rut:rutres:200201

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Keywords: territorial taxation; dividend exemption; international taxation; cost of capital; multinationals;

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  1. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
  2. Hines, J.R. & Rice, E.M., 1990. "Fiscal Paradise: Foreign Tax Havens And American Business," Papers 56, Princeton, Woodrow Wilson School - Discussion Paper.
  3. Grubert, Harry, 1998. "Taxes and the division of foreign operating income among royalties, interest, dividends and retained earnings," Journal of Public Economics, Elsevier, vol. 68(2), pages 269-290, May.
  4. Rosanne Altshuler & Harry Grubert, 2002. "Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy," Departmental Working Papers 200009, Rutgers University, Department of Economics.
  5. Alfons Weichenrieder, 1996. "Anti-tax-avoidance provisions and the size of foreign direct investment," International Tax and Public Finance, Springer, vol. 3(1), pages 67-81, January.
  6. Hines, James R. Jr., 1999. "Lessons from Behavioral Responses to International Taxation," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 305-22, June.
  7. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, July.
  8. Grubert, Harry, 2001. "Enacting Dividend Exemption and Tax Revenue," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 811-27, December.
  9. Grubert, Harry & Mutti, John, 2000. "Do Taxes Influence Where U.S. Corporations Invest?," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 825-40, December.
  10. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-93, May.
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Cited by:
  1. Harry Grubert, 2009. "MNC Dividends, Tax Holidays and the Burden of the Repatriation Tax: Recent Evidence," Working Papers 0927, Oxford University Centre for Business Taxation.
  2. Thornton Matheson & Victoria Perry & Chandara Veung, 2010. "Territorial vs. Worldwide Corporate Taxation: Implications for Developing Countries?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1316, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Harry Grubert, 2003. "The Tax Burden on Cross-Border Investment: Company Strategies and Country Responses," CESifo Working Paper Series 964, CESifo Group Munich.
  4. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2001. "Repatriation Taxes and Dividend Distortions," NBER Working Papers 8507, National Bureau of Economic Research, Inc.
  5. Peter J. Mullins, 2006. "Moving to Territoriality? Implications for the United States and the Rest of the World," IMF Working Papers 06/161, International Monetary Fund.
  6. Tajika, Eiji & Nakatani, Ryota, 2008. "Welcome Home to Japan: Repatriation of Foreign Profits by Japanese Multinationals," Discussion Papers 2008-04, Graduate School of Economics, Hitotsubashi University.

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