U.S. Firms on Foreign (tax) Holidays

60 Pages Posted: 17 Aug 2017 Last revised: 11 Oct 2018

See all articles by Travis Chow

Travis Chow

Singapore Management University - School of Accountancy

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Edward L. Maydew

University of North Carolina at Chapel Hill

Date Written: October 10, 2018

Abstract

We undertake the first large-sample analysis of foreign tax holiday participation by U.S. firms. Tax holidays are temporary reductions of tax granted by governments, usually contingent on the firm making new operational investments in the country. We predict and find that firms are more likely to participate in foreign tax holidays if they are highly capital-intensive and have highly profitable foreign operations, and less likely to participate in foreign tax holidays if they are capital constrained and if the firm is headed by a short-term focused CEO. Finally, while foreign tax holidays reduce taxes on foreign income, we also find that during our sample period they increase the amount of U.S. tax on foreign income.

Keywords: Tax holiday, corporate tax, international tax

JEL Classification: H25, H26, M41, M48

Suggested Citation

Chow, Travis and Hoopes, Jeffrey L. and Maydew, Edward L., U.S. Firms on Foreign (tax) Holidays (October 10, 2018). Kenan Institute of Private Enterprise Research Paper No. 18-3. Available at SSRN: https://ssrn.com/abstract=3018819 or http://dx.doi.org/10.2139/ssrn.3018819

Travis Chow

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
+65 6808 5450 (Phone)

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Edward L. Maydew (Contact Author)

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-843-9356 (Phone)

HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/accounting/edward-maydew

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