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An empirical investigation of the effect of imputation credits on remittance of overseas dividends

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  • Chen, Ming-Chin
  • Gupta, Sanjay

Abstract

Overseas dividend remittance is an important vehicle for multinational corporations (MNCs) to move funds among their global subsidiaries. Using firm-level data from 2001 to 2004 for Taiwan-based MNCs with subsidiaries in China, this paper provides empirical evidence on the effect of imputation credits on overseas dividend remittances. We find that imputation credits have a positive effect on increasing foreign dividend payouts, thereby reducing the efficiency loss induced by the tax cost for within-firm dividends of MNCs. We also document evidence that parent companies’ net fund flows from related-party transactions with their subsidiaries are negatively correlated with dividends repatriated from those affiliates, supporting the notion that transfer-pricing may be substituting for within-firm dividend remittance. Our results contribute to understanding the links between taxation and related-party transactions and subsidiary dividend repatriation decisions of MNCs.

Suggested Citation

  • Chen, Ming-Chin & Gupta, Sanjay, 2011. "An empirical investigation of the effect of imputation credits on remittance of overseas dividends," Journal of Contemporary Accounting and Economics, Elsevier, vol. 7(1), pages 18-30.
    • Handle: RePEc:eee:jocaae:v:7:y:2011:i:1:p:18-30
    DOI: 10.1016/j.jcae.2011.06.001
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    References listed on IDEAS

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    Cited by:

    1. Chia-Wen Chang & Ming-Chin Chen & Vincent Y.S. Chen, 2017. "Are Corporate Tax Reductions Real Benefits under Imputation Systems?," European Accounting Review, Taylor & Francis Journals, vol. 26(2), pages 215-237, April.

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