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Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals

Makoto Hasegawa ()

Discussion papers from Graduate School of Economics , Kyoto University

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 multi- nationals. I find that the semi-elasticity of pre-tax profits with respect to host-country corporate tax rates for Japanese-owned foreign subsidiaries, particularly large sub- sidiaries, sharply increased after the 2008 announcement of the implementation of the territorial tax regime, relative to that for US-owned foreign subsidiaries. This suggests that the territorial tax reform encouraged profit shifting by Japanese multinationals that owned large foreign subsidiaries.

Keywords: International taxation; Multinational corporations; Profit shifting; World-wide tax system; Territorial tax system (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 (search for similar items in EconPapers)
Pages: 63
Date: 2022-10
New Economics Papers: this item is included in nep-acc and nep-pbe
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Working Paper: Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:kue:epaper:e-22-007

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