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The Effect of Moving to a Territorial Tax System on Profit Repatriations: Evidence from Japan (Japanese)

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  • HASEGAWA Makoto
  • KIYOTA Kozo

Abstract

Japan's worldwide tax system previously taxed foreign source income upon repatriation. To stimulate dividend repatriations from Japanese-owned foreign affiliates, Japan introduced a foreign dividend exemption in 2009 that exempts dividends remitted by Japanese-owned foreign affiliates to their parent firms from home taxation. This paper examines the effect of dividend exemption on profit repatriations by Japanese multinationals. We find that the response of Japanese-owned affiliates to dividend exemption is heterogeneous. Foreign affiliates with large retained earnings are more responsive to the reform and significantly increased dividend payments to their parent firms in response to the enactment of the dividend exemption system. Dividend payments by these affiliates also became more sensitive to withholding tax rates on dividends levied by host countries because Japanese multinationals can no longer claim foreign tax credits for withholding taxes on dividends under the new exemption system.

Suggested Citation

  • HASEGAWA Makoto & KIYOTA Kozo, 2015. "The Effect of Moving to a Territorial Tax System on Profit Repatriations: Evidence from Japan (Japanese)," Discussion Papers (Japanese) 15008, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:rdpsjp:15008
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    File URL: https://www.rieti.go.jp/jp/publications/dp/15j008.pdf
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    Cited by:

    1. Dhammika Dharmapala, 2018. "The Consequences of the TCJA's International Provisions: Lessons from Existing Research," CESifo Working Paper Series 7249, CESifo.
    2. Sebastien Bradley & Estelle Dauchy & Makoto Hasegawa, 2018. "Investor valuations of Japan’s adoption of a territorial tax regime: quantifying the direct and competitive effects of international tax reform," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 581-630, June.
    3. Peter Egger & Michael Stimmelmayr, 2017. "Taxation and the Multinational Firm," CESifo Working Paper Series 6384, CESifo.
    4. Holzmann, Carolin & Büttner, Thiess, 2018. "Switching to Territorial Taxation: FDI Effects for Host-Countries of Foreign Subsidiaries," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181555, Verein für Socialpolitik / German Economic Association.

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