Apr 1, 2014 - Mar 31, 2016
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In an increasingly globalized world, the design of international tax policies, regarding whether and how to tax corporate incomes earned in foreign countries by multinational firms, has received a great deal of attention from policymakers and economists in advanced countries. Japan taxed foreign corporate income upon repatriation, allowing foreign tax credits for corporate income taxes and other related taxes paid to foreign governments under the so-called worldwide income tax system. In contrast to a worldwide income tax system, a territorial tax system exempts foreign income from home taxation; such systems are employed by many advanced countries, including Australia, Belgium, Canada, France, Germany, Italy, and the Netherlands.
The Japanese government was concerned that an excessive amount of profit was retained in foreign countries to avoid home-country taxation under the worldwide income tax system. To stimulate profit repatriations from Japanese-owned foreign affiliates, Japan introduced a permanent foreign dividend exemption in April 2009 and exempted from home taxation dividends remitted by foreign affiliates to their Japanese parent firms. Thus, with the introduction of the dividend exemption system, the Japanese corporate tax system moved to a territorial tax system. This project examines the effects of dividend exemption on the business activities of Japanese multinational corporations including dividend repatriation, firm value, and foreign direct investment.