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Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals

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  • Makoto HASEGAWA

Abstract

In 2009, Japan adopted a territorial tax regime by exempting dividends paid by Japanese-owned foreign subsidiaries to their parent firms from home-country taxation. This paper examines the impact of this tax reform on profit shifting by Japanese multi- nationals. I find that the semi-elasticity of pre-tax profits with respect to host-country corporate tax rates for Japanese-owned foreign subsidiaries, particularly large sub- sidiaries, sharply increased after the 2008 announcement of the implementation of the territorial tax regime, relative to that for US-owned foreign subsidiaries. This suggests that the territorial tax reform encouraged profit shifting by Japanese multinationals that owned large foreign subsidiaries.

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  • Makoto HASEGAWA, 2022. "Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals," Discussion papers e-22-007, Graduate School of Economics , Kyoto University.
    • Handle: RePEc:kue:epaper:e-22-007
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    Cited by:

    1. Tomomi Sakurai, 2020. "Profit Shifting by Japanese Multinational Corporations," Discussion papers ron332, Policy Research Institute, Ministry of Finance Japan.
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    More about this item

    Keywords

    International taxation; Multinational corporations; Profit shifting; World-wide tax system; Territorial tax system;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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