Is U.S. Multinational Dividend Repatriation Policy Influenced by Reporting Incentives?

Abstract

This study finds evidence that public-company reporting by U.S. multinational corporations (MNCs) creates disincentives to repatriate foreign earnings to the U.S. and contributes to the accumulation of cash abroad. MNCs operate under U.S. international tax laws and financial reporting rules and face two potential consequences when they repatriate foreign earnings: a cash payment for repatriation taxes and a reduction in reported accounting earnings. Using a confidential dataset of financial and operating characteristics of foreign affiliates of MNCs combined with public-company data, we examine how repatriation amounts vary across firms that face relatively strong reporting incentives to defer an accounting expense. Our results suggest that reporting incentives reduce repatriations by about 17 to 21 percent annually. Data Availability: Bureau of Economic Analysis (BEA) data were made available to the authors under a legal confidentiality arrangement; all non-BEA data are available from public sources.

Tax Havens and Effective Tax Rates: An Analysis of Private versus Public European Firms

“…6 The US, South Korea, and Mexico remain the only major countries outside Europe using the worldwide tax system. This tax system has been criticized for its adverse impact on U.S. firms' competitiveness vis-à-vis multinationals headquartered in territorial tax system jurisdictions because of the additional tax burdens imposed on repatriated profits (Hines, 2006;Hubbard, 2006), and because it encourages firms to "park" profits generated from foreign operations outside their home country (Blouin et al, 2012 Another important home-country characteristic examined is the impact of conformity between financial reporting and tax reporting on effective tax rates. 8 Examples of financial and tax reporting conformity include: (i) the use of financial accounting regulations for tax estimation or vice-versa; and (ii) the use of tax provisions for specified items in both the financial statements and the tax returns (Lamb, Nobes, & Roberts, 1998;Shackelford & Shevlin, 2001).…”

The U.S. Tax and Financial Reporting Treatment of Foreign Earnings and U.S. Multinational Companies' Payout Policies

“…In addition, prior studies have found a negative association between repatriations from foreign subsidiaries of U.S. MNCs and the estimated U.S. repatriation tax cost (Hines and Hubbard [1990]; Altshuler and Newlon [1993]; Desai et al [2001]; Desai et al [2007]) and between repatriations and financial reporting incentives (Blouin et al [2012] Graham et al [2010]). Altshuler, Newlon, and Randolph (1995) attempt to differentiate the effects of permanent and transitory components of the U.S. tax cost of repatriations on U.S. MNCs' repatriation decisions.…”

“…By designating foreign earnings as permanently reinvested, 3 firms are able to report higher after-tax net income in their financial statements. Existing research provides evidence the U.S. tax and financial reporting treatment of foreign earnings impacts some U.S. MNCs' repatriation decisions (Hines and Hubbard [1990]; Altshuler and Newlon [1993]; Desai, Foley, and Hines [2001]; Desai, Foley, and Hines [2007]; Graham, Hanlon, and Shevlin [2011]; Blouin, Krull, and Robinson [2012]). …”

Overseas earnings disclosures post-AJCA repatriation holiday

“…Likewise, taxation regimes in play typically discourage US multinationals from repatriating foreign earnings. As such, cash tends to accumulate overseas (Blouin, Krull & Robinson, 2012).…”