IDEAS home Printed from https://ideas.repec.org/p/kue/epaper/e-20-004-v2.html
   My bibliography  Save this paper

The Effect of Foreign Dividend Exemption on Profit Repatriation through Dividends, Royalties, and Interest: Evidence from Japan

Author

Listed:
  • Makoto HASEGAWA
  • Michi KAKEBAYASHI

Abstract

Multinational corporations repatriate foreign profits through dividends, royalties, and interest paid by foreign affiliates to their parent firms. International tax rules concerning how to tax repatriated foreign earnings influence decisions on profit repatriation. In 2009, Japan introduced a foreign dividend exemption system (so-called territorial tax system) that exempted dividends received by Japanese firms from their foreign affiliates from home-country taxation. This paper examines the effects of this tax reform on profit repatriation through dividends, royalties, and interest. The enactment of the foreign dividend exemption system decreased the effective tax rate on foreign income repatriated through dividends on average by 6.8 percentage points in 2009. We find that in response to this tax rate reduction, Japanese-owned foreign affiliates increased dividend payments, but did not change either royalty or interest payments. As a result, these affiliates increased the total payments to their Japanese parents.

Suggested Citation

  • Makoto HASEGAWA & Michi KAKEBAYASHI, 2023. "The Effect of Foreign Dividend Exemption on Profit Repatriation through Dividends, Royalties, and Interest: Evidence from Japan," Discussion papers e-20-004-v2, Graduate School of Economics , Kyoto University.
    • Handle: RePEc:kue:epaper:e-20-004-v2
    as

    Download full text from publisher

    File URL: http://www.econ.kyoto-u.ac.jp/dp/papers/e-20-004-V2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Makoto Hasegawa, 2023. "Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals," National Tax Journal, University of Chicago Press, vol. 76(4), pages 771-804.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:kue:epaper:e-20-004 is not listed on IDEAS
    2. Tomomi Sakurai, 2020. "Profit Shifting by Japanese Multinational Corporations," Discussion papers ron332, Policy Research Institute, Ministry of Finance Japan.

    More about this item

    Keywords

    International taxation; Multinational corporations; Profit repatriation; Foreign dividend exemption; Worldwide tax system; Territorial tax system;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kue:epaper:e-20-004-v2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Graduate School of Economics Project Center (email available below). General contact details of provider: https://edirc.repec.org/data/fekyojp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.