Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals

Makoto Hasegawa

National Tax Journal, 2023, vol. 76, issue 4, 771 - 804

Abstract: In 2009, Japan adopted a territorial tax regime by exempting dividends paid by Japanese-owned foreign subsidiaries to their parent firms from home-country taxation. This paper examines the impact of this tax reform on profit shifting by Japanese multinationals. I find that the semielasticity of pretax profits with respect to host-country corporate tax rates for Japanese-owned foreign subsidiaries, particularly large subsidiaries, increased after the 2008 announcement of the implementation of the territorial tax regime, relative to that for US-owned foreign subsidiaries. This suggests that large Japanese-owned foreign subsidiaries responded to the incentive for profit shifting provided by the territorial tax reform.

Date: 2023
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Related works:
Working Paper: Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals (2022)
Working Paper: Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals (2019)
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