U.S. Multinationals’ Alternatives to Paying Taxes

Abstract

We investigate how U.S. multinationals’ pre-2018 capital structure and tax planning actions were affected by potential repatriation taxes. We construct a proxy for exogenous changes to repatriation tax rates and find it is positively associated with bond issuance and debt ratios, but only for repatriation-tax-sensitive multinationals. These results are concentrated in firms with lower costs of debt capital. Additionally, after repatriation tax increases, tax-sensitive multinationals were more likely to pursue tax-free repatriation techniques (we provide several examples of these complex, lesser-known techniques) but not more likely to pursue inversions. Our findings have important implications for current and proposed tax policies.

Keywords: Inversions, Taxes, Multinational Firms, Corporate Innovation

JEL Classification: G3, G34, G38, H26, H32