Taxation of International Investment and Accounting Valuation

37 Pages Posted: 18 Aug 2006

See all articles by Anja De Waegenaere

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

Richard C. Sansing

Tuck School of Business at Dartmouth

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Date Written: August 18, 2006

Abstract

This paper develops a model of a firm's foreign investment decisions and characterizes its optimal investment and repatriation strategies. It then derives the theoretical relation between firm value and the book value of the deferred tax liability associated with such investments or, if no liability is recognized for financial reporting purposes, the reduction in firm value associated with permanently reinvested foreign earnings. It shows that the valuation relevance of these items depends on whether the earnings are invested in operating assets or financial assets. It also shows the effects of a temporary tax holiday on firm value.

Keywords: Taxation, multinational investment, deferred tax liability, permanently reinvested earnings

JEL Classification: H25, G31, G12

Suggested Citation

De Waegenaere, Anja M.B. and Sansing, Richard C., Taxation of International Investment and Accounting Valuation (August 18, 2006). Tuck School of Business Working Paper No. 2006-34. Available at SSRN: https://ssrn.com/abstract=925242 or http://dx.doi.org/10.2139/ssrn.925242

Anja M.B. De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Richard C. Sansing (Contact Author)

Tuck School of Business at Dartmouth ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-0392 (Phone)
603-646-1308 (Fax)

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