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

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  • Seppo Kari
  • Jarkko Harju

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.

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Paper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 27.

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Date of creation: 12 Oct 2011
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Handle: RePEc:fer:wpaper:27
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Keywords: Dividend taxation; financial decisions; multinational enterprise; tax reform;

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Find related papers by JEL classification:
  • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
  • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
  • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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Cited by:

  1. 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.
  2. Jarkko Harju & Seppo Kari, 2015. "Dividend Taxes and Decisions of MNEs: Evidence from a Finnish Tax Reform," CESifo Working Paper Series 5606, CESifo Group Munich.

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