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The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U.S. Multinational Corporations

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  • Rosanne Altshuler
  • T. Scott Newlon

Abstract

U.S. corporations owe taxes to the U.S. Treasury on income earned both inside and outside American borders. This paper examines the incentives created by the U.S. tax system for the legal avoidance of taxes on foreign source income. Using data from 1986 corporate tax returns, we investigate the extent to which U.S. corporations structure and coordinate remittances of income from their foreign subsidiaries to reduce their U.S. and foreign tax liabilities. In contrast to previous work in this area, our estimates of the tax consequences of income remittances from foreign subsidiaries to parent corporations explicitly take into account the ability to use foreign tax credits generated from one source of foreign income to offset the U.S. tax liability generated by other sources of foreign income, withholding tax rates on income remittances, variations in source country corporate income tax systems, and dynamic aspects of the U.S. tax system. Our findings indicate that U.S. multinationals are able to take advantage of the U.S. tax system to avoid paying much U.S. tax on their foreign source income.

Suggested Citation

  • Rosanne Altshuler & T. Scott Newlon, 1991. "The Effects of U.S. Tax Policy on the Income Repatriation Patterns of U.S. Multinational Corporations," NBER Working Papers 3925, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3925
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    1. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1, October.
    2. David G. Hartman, 1981. "Domestic Tax Policy and Foreign Investment: Some Evidence," NBER Working Papers 0784, National Bureau of Economic Research, Inc.
    3. James R. Hines, Jr. & R. Glenn Hubbard, 1990. "Coming Home To America: Dividend Repatriations By U.S. Multinationals," NBER Chapters,in: Taxation in the Global Economy, pages 161-208 National Bureau of Economic Research, Inc.
    4. Goodspeed, Timothy & Frisch, Daniel, 1989. "U.S. tax policy and the overseas activities of U.S. multinational corporations: a quantitative assessment," MPRA Paper 39389, University Library of Munich, Germany.
    5. Sinn, H.W., 1990. "Taxation And The Birth Of Foreign Subsidiaries," Papers 66, Princeton, Woodrow Wilson School - Discussion Paper.
    6. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters,in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc.
    7. David G. Hartman, 1981. "Tax Policy and Foreign Direct Investment," NBER Working Papers 0689, National Bureau of Economic Research, Inc.
    8. Leechor, Chad & Mintz, Jack, 1993. "On the taxation of multinational corporate investment when the deferral method is used by the capital exporting country," Journal of Public Economics, Elsevier, vol. 51(1), pages 75-96, May.
    9. Kolpits, George F, 1972. "Dividend Remittance Behavior Within the International Firm: A Cross-country Analysis," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 339-342, August.
    10. Hines, James Jr., 1994. "Credit and deferral as international investment incentives," Journal of Public Economics, Elsevier, vol. 55(2), pages 323-347, October.
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