Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy

Rosanne Altshuler and Harry Grubert ()
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Harry Grubert: U.S. Treasury Department

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: Several investment-repatriation strategies are added to the standard model of a parent and its affiliate in which the affiliate is located in a low-tax country and is limited to two alternatives: repatriating taxable dividends to the parent or investing in its own real operations. In our model, the subsidiary can invest in passive assets which the parent can borrow against, making any direct taxable flow to the parent unnecessary. The low-tax subsidiary can also use its earnings to invest in a related high-tax affiliate which becomes the vehicle for tax-free repatriations. Alternatively, the low-tax affiliate can be capitalized by equity injections through an upper-tier sibling. This reduces the tax on repatriations from the low-tax subsidiary because taxes at home on foreign source income are based on a blend of the siblings' tax rates. We show analytically how the availability of these strategies can effect real investment in the low-tax subsidiary and throughout the worldwide corporation. We use firm level data for U.S. multinational corporations to test for the importance of these alternative strategies. The evidence is generally consistent with the theory, particularly the "triangular" strategies using related affiliates.

Keywords: dividend repatriation; financial policy; international taxation; investment policy; multinational (search for similar items in EconPapers)
JEL-codes: H25 H87 (search for similar items in EconPapers)
Date: 2002-01-27
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Citations: View citations in EconPapers (66)

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Related works:
Journal Article: Repatriation taxes, repatriation strategies and multinational financial policy (2003)
Working Paper: Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:200009

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