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

Seppo Kari and Jarkko Harju

No 27, Working Papers from VATT Institute for Economic Research

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.

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, (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-acc and nep-pub
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Citations: View citations in EconPapers (2)

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https://www.doria.fi/handle/10024/148766

Related works:
Journal Article: Dividend Taxes and Decisions of MNEs: Evidence from a Finnish Tax Reform (2017)
Working Paper: Dividend Taxes and Decisions of MNEs: Evidence from a Finnish Tax Reform (2015)
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