Dividend Taxes and Decisions of MNEs: Evidence from a Finnish Tax Reform

Jarkko Harju and Seppo Kari

CESifo Economic Studies, 2017, vol. 63, issue 1, 45-77

Abstract: In this study, we explore how a firm-level dividend tax on redistributed foreign profits affects the financial decisions of a multinational enterprise (MNE). We examine this by 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 untaxed profits. Theoretical analyses have suggested that EQT may distort several financial decisions of MNEs. We find a 23% increase in dividend payments and a similar increase in repatriated foreign profits after the repeal of EQT among Finnish MNEs. We also find evidence that the reported profits increased among foreign subsidiaries of Finnish MNEs, which indicates an effect on profit-shifting. No change in investment was detected.

Keywords: taxation; multinational firms; firm behavior (search for similar items in EconPapers)
JEL-codes: F23 H25 H32 (search for similar items in EconPapers)
Date: 2017
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Dividend Taxes and Decisions of MNEs: Evidence from a Finnish Tax Reform (2015)
Working Paper: Dividend taxes and decisions of MNEs: Evidence from a Finnish tax reform (2011)
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