The Effect of Moving to a Territorial Tax System on the Activities of Multinational Corporations

2016 Fiscal Year Final Research Report

• Project/Area Number: 26780172
• Research Category: Grant-in-Aid for Young Scientists (B)
• Allocation Type: Multi-year Fund
• Research Field: Public finance/Public economy
• Research Institution: National Graduate Institute for Policy Studies
• Principal Investigator: Hasegawa Makoto 政策研究大学院大学, 政策研究科, 助教授 (50722542)
• Project Period (FY): 2014-04-01 – 2017-03-31
• Keywords: 国際課税 / 国外所得免除方式 / 外国税額控除方式 / 多国籍企業 / 配当還流

Outline of Final Research Achievements

Japan introduced a foreign dividend exemption system in 2009 that exempted dividends paid by Japanese-owned foreign affiliates to their parents from home country taxation. As a result of this tax reform, the Japanese corporate tax system effectively moved to a territorial tax system, which exempts foreign income from home country taxation. In this project, I examine the effect of the dividend exemption system on dividends paid by Japanese-owned foreign affiliates and the stock market valuations of Japanese multinationals. I find that foreign affiliates with a large stock of retained earnings were generally more responsive to the tax reform and significantly increased dividend payments to their parent firms in response to the enactment of the dividend exemption system. Dividend payments by foreign affiliates also became more sensitive to withholding tax rates on dividends levied by host countries under the dividend exemption system.

Free Research Field

財政・公共経済学