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.

The Usefulness of Disclosures of Untaxed Foreign Earnings in Firm Valuation

2008 ◽  
Vol 30 (2) ◽  
pp. 53-77 ◽  
Author(s):  
Mark P. Bauman ◽  
Kenneth W. Shaw
Keyword(s):  
Firm Valuation ◽  
Foreign Subsidiaries ◽  
Share Prices ◽  
Current Accounting ◽  
Foreign Earnings ◽  
Tax Effects ◽  
Downward Bias ◽  
Accounting Rules ◽  
Repatriation Taxes

ABSTRACT: Under current accounting rules, U.S. multinationals are not required to record liabilities for future taxes on earnings of foreign subsidiaries, as long as those earnings are deemed to be indefinitely reinvested in those subsidiaries. These rules allow considerable flexibility in the designation of earnings deemed permanently reinvested and the reporting of expected repatriation taxes thereon. Some firms disclose amounts for unrecorded taxes on permanently reinvested earnings, but most do not. We show that while estimated repatriation taxes are relevant in explaining share prices of non-disclosing firms, they are less relevant than firm-disclosed amounts are in explaining share prices of disclosing firms. This result is due to estimated repatriation tax amounts exhibiting downward bias, and less accuracy for actual repatriation tax effects, relative to firm-disclosed repatriation tax amounts. We propose new disclosures designed to improve the relevance of estimated repatriation tax amounts.

scholarly journals Is U.S. Multinational Dividend Repatriation Policy Influenced by Reporting Incentives?

2012 ◽  
Vol 87 (5) ◽  
pp. 1463-1491 ◽  
Author(s):  
Jennifer L. Blouin ◽  
Linda K. Krull ◽  
Leslie A. Robinson
Keyword(s):  
Multinational Corporations ◽  
Financial Reporting ◽  
Data Availability ◽  
Operating Characteristics ◽  
Foreign Earnings ◽  
Reporting Incentives ◽  
Cash Payment ◽  
Public Company ◽  
Foreign Affiliates ◽  
Repatriation Taxes

ABSTRACT This study finds evidence that public-company reporting by U.S. multinational corporations (MNCs) creates disincentives to repatriate foreign earnings to the U.S. and contributes to the accumulation of cash abroad. MNCs operate under U.S. international tax laws and financial reporting rules and face two potential consequences when they repatriate foreign earnings: a cash payment for repatriation taxes and a reduction in reported accounting earnings. Using a confidential dataset of financial and operating characteristics of foreign affiliates of MNCs combined with public-company data, we examine how repatriation amounts vary across firms that face relatively strong reporting incentives to defer an accounting expense. Our results suggest that reporting incentives reduce repatriations by about 17 to 21 percent annually. Data Availability: Bureau of Economic Analysis (BEA) data were made available to the authors under a legal confidentiality arrangement; all non-BEA data are available from public sources.

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.

scholarly journals The effect of a worldwide tax system on tax management of foreign subsidiaries

2019 ◽  
Vol 51 (8) ◽  
pp. 1312-1330
Author(s):  
Saskia Kohlhase ◽  
Jochen Pierk
Keyword(s):  
Multinational Corporations ◽  
Tax Rates ◽  
Foreign Subsidiaries ◽  
Natural Experiments ◽  
Effective Tax Rates ◽  
Tax System ◽  
Tax Management ◽  
Tax Systems

AbstractUnder a worldwide tax system, firms pay taxes on their domestic income and repatriated foreign income, whereas under a territorial tax system repatriated foreign income is exempt from taxation. We examine whether worldwide tax systems reduce the incentives of multinational corporations to engage in tax management in their foreign subsidiaries. Using two quasi-natural experiments, we show that multinationals lower the effective tax rates in their foreign subsidiaries after countries switch from a worldwide to a territorial tax system. Thus, multinationals subject to a worldwide tax system face competitive disadvantages compared to competitors from countries with a territorial tax system.

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.

“Talk in Tamil!” – Does Sri Lankan Tamil onward migration from Europe influence Tamil language maintenance in the UK?

2021 ◽  
Vol 2021 (269) ◽  
pp. 123-149
Author(s):  
Lavanya Sankaran
Keyword(s):  
Heritage Language ◽  
Language Maintenance ◽  
Recent Change ◽  
Sri Lankan ◽  
Mobility Patterns ◽  
European Languages ◽  
Onward Migration ◽  
Migratory Patterns ◽  
Definition Of ◽  
The Uk

Abstract This article uses the “communicative repertoire” conceptual framework to investigate the evolving linguistic practices in the Sri Lankan Tamil (SLT) diaspora, looking specifically at how changing mobility patterns have had an influence on heritage language use. Drawing on fieldwork undertaken with 42 participants of diverse migration trajectories in London, the study finds that onward migration has important implications for Tamil language maintenance and use in the UK, and for the introduction of European languages into the community. It argues that Tamil practices can only be fully understood if we consider them within the context of participants' communicative repertoires. Further, the definition of Tamil needs to be expanded to include different varieties, registers and styles that have been shaped by onward migration. As the trend of multiple migrations is becoming increasingly common in globalization processes, studying the recent change in SLT migratory patterns is also crucial to gaining insight into the diversities and transnational links that exist within and across diaspora communities respectively.

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