TAX IMPACT ON U.S. FIRMS' CHOICE OF FOREIGN INCOME REMITTANCE METHODS: DIVIDENDS AND ROYALTIES (UNITED STATES)

The tax impact on large U.S. firms' choice of foreign income remittance methods is empirically examined using foreign income statistics based on tax returns filed with the U.S. Internal Revenue Service for the year 1986. A multivariate regression model incorporating factors critical to how firms choose foreign market supply modes is developed to estimate the nominal amounts of foreign income remitted to the United States as dividends and royalties. The extent to which U.S. firms exploit the differential tax treatment of dividend and royalty remittance is estimated using a regression model which measures how much firms shift foreign income remittance between the two methods according to tax rate difference.; The results of this study confirm that foreign income remittances to the United States are highly responsive to tax difference among countries. Further, U.S. firms actively exploit the differential tax treatment of royalty and dividend remittances by shifting foreign income remittance between the two methods.; The findings of this research contribute to a refined understanding of firms' foreign income remittance behavior. Applications of the results include analyzing the policy impacts of tax rate changes and estimating tax effects on firms' foreign market supply strategy and global organization choices.