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Dividend taxes and decisions of MNEs: Evidence from a Finnish tax reform

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  • Kari, Seppo
  • Harju, Jarkko

Abstract

We explore how a firm-level tax on redistributed foreign profits affects the choices of a multinational enterprise (MNE) using evidence from a recent tax reform in Finland. The so-called equalization tax (EQT) used to be a regular element of European imputation systems, designed to ensure that dividends were not paid out of un-taxed profits. Theoretical analyses have suggested that EQT may distort several choices of MNEs. We find a 23 per cent increase in dividend payments and a similar increase in repatriated foreign profits after the repeal of EQT. The reported profits of foreign subsidiaries of Finnish MNEs also increased, which indicates an effect on profit shifting. No change in investment was detected.

Suggested Citation

  • Kari, Seppo & Harju, Jarkko, 2011. "Dividend taxes and decisions of MNEs: Evidence from a Finnish tax reform," Working Papers 27, Government Institute for Economic Research Finland (VATT).
  • Handle: RePEc:fer:wpaper:27
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    Cited by:

    1. repec:oup:cesifo:v:63:y:2017:i:1:p:45-77. is not listed on IDEAS
    2. Eerola, Essi & Lyytikäinen, Teemu, 2015. "On the role of public price information in housing markets," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 74-84.
    3. Jarkko Harju & Seppo Kari, 2017. "Dividend Taxes and Decisions of MNEs: Evidence from a Finnish Tax Reform," CESifo Economic Studies, CESifo, vol. 63(1), pages 45-77.

    More about this item

    Keywords

    Dividend taxation; financial decisions; multinational enterprise; tax reform; Taxation; Verotus; Taxation and Social Transfers; Julkisen talouden rahoitus ja tulonsiirrot; F230 - Multinational Firms; International Business (International Competitiveness); H250 - Business Taxes and Subsidies including sales and value-added (VAT); H320 - Fiscal Policies and Behavior of Economic Agents: Firm;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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