Where in the world are "permanently reinvested" foreign earnings?

49 Pages Posted: 1 Oct 2012 Last revised: 17 Apr 2023

See all articles by Jennifer Blouin

Jennifer Blouin

University of Pennsylvania - Accounting Department

Linda K. Krull

University of Oregon

Leslie A. Robinson

Dartmouth College - Tuck School of Business; Dartmouth College - Accounting

Date Written: October 1, 2012

Abstract

This study uses permanently reinvested earnings (PRE) reported in U.S. multinational corporations (MNCs) financial statements, combined with detailed information on foreign affiliate assets to estimate the location and composition of PRE. We use these estimates to study the motivations for PRE designations and the implications of PRE for growth, liquidity, and the potential effects of U.S. tax reform. Our analysis suggests that PRE designations are driven by tax, earnings, and growth incentives – 95 percent of PRE is located in affiliates that would require recognition of an expected repatriation tax expense, and 38 percent of PRE is in high growth affiliates. While our estimates suggest that most PRE are associated with unrecognized repatriation tax obligations, the existence of some PRE in high tax jurisdictions reduces the potential tax cost associated with PRE. We also find that, for firms in overall non-binding foreign tax credit positions, a significantly greater proportion of PRE in low tax jurisdictions is held in cash, relative to high tax jurisdictions, suggesting liquidity implications arising from the current tax system.

Keywords: permanently reinvested earnings; repatriation tax

JEL Classification: M41

Suggested Citation

Blouin, Jennifer and Krull, Linda K. and Robinson, Leslie, Where in the world are "permanently reinvested" foreign earnings? (October 1, 2012). Available at SSRN: https://ssrn.com/abstract=2154662 or http://dx.doi.org/10.2139/ssrn.2154662

Jennifer Blouin

University of Pennsylvania - Accounting Department ( email )

1315 SHDH
3620 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Linda K. Krull

University of Oregon ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States
541-346-3252 (Phone)

Leslie Robinson (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Dartmouth College - Accounting ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-4018 (Phone)

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