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Where Will They Go if We Go Territorial? Dividend Exemption and the Location Decisions of U.S. Multinational Corporations

  • Altshuler, Rosanne
  • Grubert, Harry

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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Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 54 (2001)
Issue (Month): n. 4 (December)
Pages: 787-809

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Handle: RePEc:ntj:journl:v:54:y:2001:i:n._4:p:787-809
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  1. Rosanne Altshuler & Harry Grubert, 2002. "Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy," Departmental Working Papers 200009, Rutgers University, Department of Economics.
  2. 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.
  3. Hines, James R, Jr & Rice, Eric M, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 149-82, February.
  4. 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.
  5. Grubert, Harry, 2001. "Enacting Dividend Exemption and Tax Revenue," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 811-27, December.
  6. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
  7. 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.
  8. 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.
  9. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, January.
  10. 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.
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