Examining Investor Expectations Concerning Tax Savings on the Repatriations of Foreign Earnings under the American Jobs Creation Act of 2004

2007 ◽  
Vol 29 (2) ◽  
pp. 25-55 ◽  
Author(s):  
Mitchell Oler ◽  
Terry Shevlin ◽  
Ryan Wilson
Keyword(s):  
Multinational Corporations ◽  
Foreign Subsidiaries ◽  
Foreign Earnings ◽  
Tax Savings ◽  
One Year ◽  
The Impact ◽  
Tax Holiday ◽  
Investor Expectations

The American Jobs Creation Act of 2004 was signed into law on October 22, 2004. One of the most significant aspects of this legislation is a temporary tax holiday for dividend repatriations from foreign subsidiaries. U.S. multinational corporations may elect during a one-year window to deduct 85 percent of extraordinary cash dividends received from foreign subsidiaries. In this study, we model the impact that this legislation has on a firm's decision to either repatriate or reinvest foreign earnings from abroad. We then examine investors' assessment of how U.S. multinational corporations will respond to the temporary tax holiday. Our results indicate that investors repriced the tax liability consistent with investors anticipating that U.S. multinational corporations will repatriate a significant portion of their permanently reinvested foreign earnings during the tax holiday.

Financial Reporting versus Tax Incentives and Repatriation under the 2004 Tax Holiday

2013 ◽  
Vol 36 (1) ◽  
pp. 63-87 ◽  
Author(s):  
Michaele Morrow ◽  
Robert C. Ricketts
Keyword(s):  
Multinational Corporations ◽  
Financial Reporting ◽  
Financial Statements ◽  
Tax Incentives ◽  
Tax Rates ◽  
Foreign Earnings ◽  
Reporting Incentives ◽  
Tax Savings ◽  
Tax Costs ◽  
Tax Holiday

ABSTRACT We analyze the repatriation behavior of U.S. multinational corporations under the tax holiday implemented as part of the American Jobs Creation Act of 2004. Our results suggest that tax incentives, as reflected in differences between firms' effective foreign tax rates, do not appear to be significant predictors of either participation in the tax holiday or the amounts repatriated by firms that chose to participate. In contrast, differences in financial reporting incentives were significant predictors of both participation in the holiday and the amounts repatriated. Not surprisingly, we find that firms appear to have chosen between repatriation of permanently versus temporarily deferred foreign earnings based on how the source of repatriation impacted their GAAP financial statements. Moreover, our results suggest that many firms chose to participate in the holiday only to the extent necessary to achieve financial reporting goals. Overall, our results suggest that financial reporting incentives appear to have been much more important to firms than tax savings in choosing whether and to what extent to participate in the holiday. Indeed, many firms appear to have viewed the act principally as an opportunity to manage reported GAAP income, rather than as an opportunity to reduce their U.S. tax costs.

Feeling GILTI: Tax Strategies for U.S. Multinational Corporations to Navigate the Tax Cuts and Jobs Act

2020 ◽  
Author(s):  
Brett L. Bueltel ◽  
Andrew Duxbury
Keyword(s):  
Multinational Corporations ◽  
Tax Policy ◽  
Foreign Subsidiaries ◽  
Foreign Earnings ◽  
Most Significant Change ◽  
History Of ◽  
International Tax Policy ◽  
Jobs Act ◽  
Specific Tax ◽  
Tax Cuts

The Tax Cuts and Jobs Act made significant changes to the U.S. taxation of foreign earnings. The most significant change is the 100 percent dividends-received deduction that generally applies to income earned by foreign subsidiaries. This represents a shift from U.S. tax deferral to U.S. tax exemption of foreign profits, which increases the potential benefit to shifting U.S. income to low-tax foreign jurisdictions. To limit this potential income shifting, Congress enacted new rules, known as GILTI, to supplement the already existing Subpart F rules. In this article, we briefly review the history of U.S. international tax policy and analyze the technical aspects of GILTI. We then discuss some general tax planning strategies and propose four specific tax strategies for companies to consider for minimizing the increased tax burden associated with GILTI. Lastly, we consider whether GILTI is good tax policy and make recommendations to improve the legislation.

scholarly journals Relative Valuation of Alternative Methods of Tax Avoidance

2013 ◽  
Vol 36 (1) ◽  
pp. 27-55 ◽  
Author(s):  
Kerry K. Inger
Keyword(s):  
Firm Value ◽  
Tax Avoidance ◽  
Stock Option ◽  
Alternative Methods ◽  
Foreign Earnings ◽  
Tax Reduction ◽  
Accelerated Depreciation ◽  
Tax Savings ◽  
The Impact ◽  
Relative Valuation

ABSTRACT This paper examines the relative valuation of alternative methods of tax avoidance. Prior studies find that firm value is positively associated with overall tax avoidance; I provide evidence that investors distinguish between methods of tax reduction in their valuation of tax avoidance. My analyses suggest that the impact of tax avoidance on firm value varies with tax risk, permanence of tax savings, tax planning costs, implicit taxes, and contrasts in disclosures of tax reduction in the financial statements. Tax avoidance resulting from stock option deductions is positively associated with firm value, accelerated depreciation is not associated with firm value, and deferral of residual U.S. tax on foreign earnings is negatively associated with firm value. The discount on tax avoidance generated by residual tax deferral is limited to firms with a presence in a tax haven and to tax avoidance revealed to investors through disclosure of the estimated residual tax.

Repatriation Taxes, Internal Agency Conflicts, and Subsidiary-level Investment Efficiency

2020 ◽  
Author(s):  
Harald J. Amberger ◽  
Kevin S. Markle ◽  
David M. P. Samuel
Keyword(s):  
Multinational Corporations ◽  
Recent Change ◽  
Investment Efficiency ◽  
Agency Conflicts ◽  
Foreign Subsidiaries ◽  
Natural Experiments ◽  
Foreign Earnings ◽  
Repatriation Taxes ◽  
The Uk ◽  
Central Management

Using a global sample of multinational corporations (MNCs) and their foreign subsidiaries, we find that repatriation taxes impair subsidiary-level investment efficiency. Consistent with internal agency conflicts between the central management of the MNC and the manager of the foreign subsidiary being the driver, we show that this effect is concentrated in subsidiaries with high information asymmetry and in subsidiaries that are weakly monitored. Quasi-natural experiments in the UK and Japan establish a causal relationship for our findings and suggest that a repeal of repatriation taxes increases subsidiary-level investment efficiency while reducing the level of investment. Our paper provides timely empirical evidence to inform expectations for the effects of a recent change to the U.S. international tax law that eliminated repatriation taxes from most of the future foreign earnings of U.S. MNCs.

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