IMPACT OF THE 2017 TAX CUTS AND JOBS ACT ON FOREIGN CASH HOLDINGS OF U.S. MULTINATIONAL CORPORATIONS

Herman Manakyan and Ani Mathers

Accounting & Taxation, 2021, vol. 13, issue 1, 15-30

Abstract: U.S. Multinational Corporations (MNCs) generate significant amounts of income in foreign countries through their international affiliates and subsidiaries. Prior to 2018, this income was subject to U.S. taxation only when repatriated to the U.S., creating an incentive for those firms to retain these earnings in their foreign subsidiaries and leading to the accumulation of large amounts of cash held by U.S. corporations outside of the U.S. The Tax Cuts and Jobs Act (TCJA), which was signed into law by President Trump on December 22, 2017, changed the corporate taxation of U.S. MNCs to a territorial system and created an immediate tax liability for U.S. MNCs’ deemed repatriation of their past foreign earnings. A primary objective of the change in the corporate tax structure was to encourage repatriation of accumulated foreign cash, as well as to eliminate the incentives to accumulate cash in foreign jurisdictions. This study examines the impact of the tax law changes on cash transactions and cash holdings of U.S. MNCs. Our results indicate a major policy goal of TCJA was largely accomplished, resulting in U.S. MNCs repatriating significant amounts of accumulated foreign cash, as well as reducing the future retention of earnings in foreign jurisdictions.

Keywords: Multinational Corporations; Tax Cut and Jobs Act; Foreign Cash; Trapped Cash (search for similar items in EconPapers)
JEL-codes: G14 G38 H25 (search for similar items in EconPapers)
Date: 2021
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