Impact of the 2017 Tax Cuts and Jobs Act on Foreign Cash Holdings of U.S. Multinational Corporations

Accounting & Taxation, V. 13 (1) P. 15-30

16 Pages Posted: 11 Aug 2021

See all articles by Herman Manakyan

Herman Manakyan

Salisbury University

Ani Manakyan Mathers

Salisbury University - Department of Economics and Finance

Date Written: 2021

Abstract

U.S. Multinational Corporations (MNCs) generate significant amounts of income in foreign countries
hrough their international affiliates and subsidiaries. Prior to 2018, this income was subject to U.S. taxation only when repatriated to the U.S., creating an incentive for those firms to retain these earnings in their foreign subsidiaries and leading to the accumulation of large amounts of cash held by U.S. corporations outside of the U.S. The Tax Cuts and Jobs Act (TCJA), which was signed into law by President Trump on December 22, 2017, changed the corporate taxation of U.S. MNCs to a territorial system and created an immediate tax liability for U.S. MNCs’ “deemed repatriation” of their past foreign earnings. A primary objective of the change in the corporate tax structure was to encourage repatriation of accumulated foreign cash, as well as to eliminate the incentives to accumulate cash in foreign jurisdictions. This study examines the impact of the tax law changes on cash transactions and cash holdings of U.S. MNCs. Our results indicate a major policy goal of TCJA was largely accomplished, resulting in U.S. MNCs repatriating significant amounts of accumulated foreign cash, as well as reducing the future retention of earnings in foreign jurisdictions.

Keywords: Multinational Corporations, Tax Cut and Jobs Act, Foreign Cash, Trapped Cash

JEL Classification: G14, G38, H25

Suggested Citation

Manakyan, Herman and Mathers, Ani Manakyan, Impact of the 2017 Tax Cuts and Jobs Act on Foreign Cash Holdings of U.S. Multinational Corporations (2021). Accounting & Taxation, V. 13 (1) P. 15-30, Available at SSRN: https://ssrn.com/abstract=3902106

Herman Manakyan (Contact Author)

Salisbury University ( email )

1101 Camden Ave
Salisbury, MD 21801
United States

Ani Manakyan Mathers

Salisbury University - Department of Economics and Finance ( email )

Salisbury, MD 21801
United States

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