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The repatriation incentive of the foreign dividend exemption system

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  • Carmen Bachmann
  • Martin Baumann

Abstract

Due to the high taxation of domestic corporate income, Japanese multinational enterprises have avoided to repatriate foreign profits to Japan for quite some time. As a consequence, the Japanese government introduced a new taxation system in 2009 -- the so called dividend exemption system -- which was aimed at reducing the effective tax burden of foreign dividends of Japanese multinational companies in order to increase tax revenue and stimulate economic growth. Applying a theoretical framework which allows comparing the repatriation incentive of the old and new Japanese tax systems, we find that in the long-run the tax regime change fails to incentivize foreign subsidiaries to repatriate foreign profits. Especially subsidiaries with high leverage located in countries with low corporate taxes and low dividend taxes might reinvest rather than distribute their earnings in the dividend exemption method.

Suggested Citation

  • Carmen Bachmann & Martin Baumann, 2016. "The repatriation incentive of the foreign dividend exemption system," Applied Economics, Taylor & Francis Journals, vol. 48(29), pages 2736-2755, June.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:29:p:2736-2755
    DOI: 10.1080/00036846.2015.1128080
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    Cited by:

    1. Carmen Bachmann & Martin Baumann & Konrad Richter, 2018. "The effects on investment incentives of an allowance for corporate equity tax system: the Belgian case as an example," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 943-965, November.

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