The Consequences of the TCJA's International Provisions: Lessons from Existing Research

32 Pages Posted: 31 Jul 2018 Last revised: 10 Sep 2018

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Date Written: August 2018

Abstract

This paper discusses the potential consequences of the international tax provisions of the recent Tax Cut and Jobs Act (TCJA), drawing on existing research. The TCJA’s dividend exemption provision is expected to eliminate distortions to the amount and timing of dividend repatriations. However, the efficiency gains from increased repatriations – which are primarily expected to increase shareholder payout – are likely to be modest. The paper uses the observed behavior of firms during the repatriation tax holiday implemented in 2005 to infer the relative magnitudes of the burdens created by the repatriation tax under the old (pre-TCJA) regime and by the TCJA’s new “Global Intangible Low-Taxed Income” (GILTI) tax. It concludes that the TCJA increases the tax burden on US residence for many, and perhaps most, US MNCs. The paper also argues that the GILTI and “Foreign-Derived Intangible Income” (FDII) provisions are likely to create substantial distortions to the ownership of assets, both in the US and around the world. Overall, the scholarly evidence implies that the international provisions of the TCJA can reasonably be expected to create potentially large efficiency losses.

Keywords: International Taxation; Tax Reform; Tax Cut and Jobs Act; GILTI; FDII

JEL Classification: H25

Suggested Citation

Dharmapala, Dhammika, The Consequences of the TCJA's International Provisions: Lessons from Existing Research (August 2018). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 856; U of Chicago, Public Law Working Paper No. 681. Available at SSRN: https://ssrn.com/abstract=3212072 or http://dx.doi.org/10.2139/ssrn.3212072

Dhammika Dharmapala (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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