When a U.S. multinational corporation shifts income from the U.S. to foreign jurisdictions, it incurs costs and reaps benefits. The benefits may be reduced if the shifted income must be returned to the U.S. as a dividend in the short term and face the same U.S. tax it would have if the income had not been shifted. Firms, then, have incentive to defer repatriation of earnings and to fund domestic cash needs with external financing. The cost of external financing, however, is increasing in financial constraints, leading to the prediction that constrained firms will be unable to defer repatriation and, therefore, will reap no benefits from shifting. Using a new methodology for measuring income shifting, we find, consistent with predictions, that financially constrained firms shift less income from the U.S. to foreign countries than their unconstrained peers. We estimate that financially constrained firms shift out 20 percent less of pre-shifted income than unconstrained firms. Translating this percentage to dollar values, the mean (median) constrained firm shifts $16 million ($7 million) out of the U.S. each year, while the mean (median) unconstrained firm shifts $321 million ($134 million) out of the U.S. each year. Assuming that the inability to defer repatriation is the primary constraint preventing the U.S. worldwide tax system from being a de facto territorial system, we use our findings to estimate that changing to a pure territorial tax system would increase outbound income shifting by U.S. multinationals by 8 percent.

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This paper tests for differences in the tax-motivated income-shifting behaviors of multinationals subject to different systems of taxing foreign earnings. I find that, on average, multinationals subject to territorial tax regimes shift more income than those subject to worldwide tax regimes. The difference in shifting, however, is driven by a difference in the subset of shifting that involves the parent country; multinationals in the two groups appear to shift equally among their foreign affiliates. In additional tests, I find that the shifting of worldwide firms is sensitive to reinvestment in the recipient countries, while that of territorial firms is not.Une comparaison des transferts de b en efices des multinationales motiv es par les r egimes fiscaux territoriaux et internationaux R ESUM EL'auteur v erifie les diff erences dans les comportements de transfert de b en efices motiv es par l'impôt des multinationales assujetties a diff erents r egimes d'imposition des b en efices etrangers. Il constate qu'en moyenne, les multinationales assujetties a des r egimes fiscaux territoriaux transf erent davantage de b en efices que celles qui sont assujetties a des r egimes fiscaux internationaux. Ces distinctions dans les comportements de transfert sont toutefois r egies par une diff erence dans le sous-ensemble des transferts qui font intervenir le pays de la soci et e m ere; les multinationales des deux groupes semblent effectuer des transferts egaux entre leurs soci et es affili ees etrang eres. Des tests suppl ementaires permettent a l'auteur de constater que les transferts effectu es par les soci et es soumises a un r egime fiscal international sont sensibles au r einvestissement dans les pays b en eficiaires, ce qui n'est pas le cas des transferts effectu es par les soci et es soumises a un r egime fiscal territorial.

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Carolina. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.