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Where will they go if we go territorial? Dividend exemption and the location decisions of U.S. multinational corporations
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Where will they go if we go territorial? Dividend exemption and the location decisions of U.S. multinational corporations

Author

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  • Rosanne Altshuler

    (Rutgers University, Department of Economics)

  • Harry Grubert

    (U.S. Treasury Department)

Abstract

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.

Suggested Citation

  • Rosanne Altshuler & Harry Grubert, 2002. "Where will they go if we go territorial? Dividend exemption and the location decisions of U.S. multinational corporations," Departmental Working Papers 200201, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:200201
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    1. Grubert, Harry, 2001. "Enacting Dividend Exemption and Tax Revenue," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 811-827, December.
    2. Grubert, Harry, 2001. "Enacting Dividend Exemption and Tax Revenue," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 811-27, December.
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    7. 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.
    8. Harry Grubert & John Mutti, 2001. "Taxing International Business Income," Books, American Enterprise Institute, number 53055, September.
    9. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
    10. Grubert, Harry & Mutti, John, 2000. "Do Taxes Influence Where U.S. Corporations Invest?," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(4), pages 825-840, December.
    11. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 149-182.
    12. Assaf Razin & Joel Slemrod, 1990. "Taxation in the Global Economy," NBER Books, National Bureau of Economic Research, Inc, number razi90-1.
    13. 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 285-293, May.
    14. Hines, James R. (ed.), 2001. "International Taxation and Multinational Activity," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226341736, April.
    15. Graetz, Michael J. & Oosterhuis, Paul W., 2001. "Structuring an Exemption System for Foreign Income of U.S. Corporations," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 771-86, December.
    16. 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.
    17. 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.
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    1. Grubert, Harry, 2001. "Enacting Dividend Exemption and Tax Revenue," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 811-27, December.
    2. Chen, Ming-Chin & Gupta, Sanjay, 2011. "An empirical investigation of the effect of imputation credits on remittance of overseas dividends," Journal of Contemporary Accounting and Economics, Elsevier, vol. 7(1), pages 18-30.
    3. Desai, Mihir A. & Foley, C. Fritz & Hines, James R. Jr., 2001. "Repatriation Taxes and Dividend Distortions," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 829-851, December.
    4. Eric J. Allen & Susan C. Morse, 2013. "Tax-Haven Incorporation for U.S.-Headquartered Firms: No Exodus Yet," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 395-420, June.
    5. Barrios, Salvador & Huizinga, Harry & Laeven, Luc & Nicodème, Gaëtan, 2012. "International taxation and multinational firm location decisions," Journal of Public Economics, Elsevier, vol. 96(11), pages 946-958.
    6. Thornton Matheson & Victoria Perry & Chandara Veung, 2010. "Territorial vs. Worldwide Corporate Taxation: Implications for Developing Countries?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1316, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    7. Harry Grubert & Rosanne Altshuler, 2013. "Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(3), pages 671-712, September.
    8. Mr. Peter J. Mullins, 2006. "Moving to Territoriality? Implications for the United States and the Rest of the World," IMF Working Papers 2006/161, International Monetary Fund.
    9. Hasegawa, Makoto & Kiyota, Kozo, 2017. "The effect of moving to a territorial tax system on profit repatriation: Evidence from Japan," Journal of Public Economics, Elsevier, vol. 153(C), pages 92-110.
    10. Kevin S Markle, 2012. "A Comparison of the Tax-motivated Income Shifting of Multinationals in Territorial and Worldwide Countries," Working Papers 1206, Oxford University Centre for Business Taxation.
    11. Harry Grubert, 2003. "The Tax Burden on Cross-Border Investment: Company Strategies and Country Responses," CESifo Working Paper Series 964, CESifo.
    12. Grubert, Harry, 2001. "Enacting Dividend Exemption and Tax Revenue," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 811-827, December.
    13. Peter Vaz da Fonseca & Michele Nascimento Juca, 2020. "The Influence of Taxes on Foreign Direct Investment: Systematic Literature Review and Bibliometric Analysis," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 55-77.
    14. Peter Egger & Valeria Merlo & Martin Ruf & Georg Wamser, 2015. "Consequences of the New UK Tax Exemption System: Evidence from Micro‐level Data," Economic Journal, Royal Economic Society, vol. 125(589), pages 1764-1789, December.
    15. Thornton Matheson & Victoria Perry & Chandara Veung, 2014. "Territorial versus worldwide corporate taxation: Implications for developing countries," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 5, pages 147-169, Edward Elgar Publishing.
    16. Krishanu Karmakar & Jorge Martinez-Vazquez, 2014. "Fiscal Competition versus Fiscal Harmonization: A Review of the Arguments," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1431, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    17. Tajika, Eiji & 田近たぢか, 栄治えいじ & Nakatani, Ryota & 中谷なかたに, 亮太りょうた, 2008. "Welcome Home to Japan: Repatriation of Foreign Profits by Japanese Multinationals," Discussion Papers 2008-04, Graduate School of Economics, Hitotsubashi University.
    18. Ms. Thornton Matheson & Ms. Victoria J Perry & Mr. Chandara Veung, 2013. "Territorial vs. Worldwide Corporate Taxation: Implications for Developing Countries," IMF Working Papers 2013/205, International Monetary Fund.
    19. Harry Grubert, 2009. "MNC Dividends, Tax Holidays and the Burden of the Repatriation Tax: Recent Evidence," Working Papers 0927, Oxford University Centre for Business Taxation.
    20. Rosanne Altshuler, 2010. "Lessons from the Study of Taxes and the Behaviour of US Multinational Corporations," Chapters, in: Iris Claus & Norman Gemmell & Michelle Harding & David White (ed.), Tax Reform in Open Economies, chapter 4, Edward Elgar Publishing.

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    More about this item

    Keywords

    territorial taxation; dividend exemption; international taxation; cost of capital; multinationals;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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