Difference between revisions of "Repatriation tax holidays"

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A '''tax repatriation holiday''' (also: “repatriation tax holiday” or “repatriated tax break”) is a one-time tax-break that allows multinational corporations to repatriate income earned abroad back to their home country at a discounted tax rate. The underlying theory is that multinational corporations will not transfer income back to the country, in which their headquarters are located, if the income earned abroad will be taxed at a higher domestic tax rate than the foreign tax rate. Therefore, a tax repatriation holiday serves as an incentive to multinational corporations to invest the money in their home economy rather than keeping it abroad.
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===='''''CONCEPT'''''====
 
===='''''CONCEPT'''''====
 
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=====Goals=====
 
=====Goals=====
* [[Has goal of::Click "edit" above to add goals of this policy]].
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* [[Has goal of:: Increase economic growth]]
<!--List policy goals using the following markup text: Has goal of::INSERT (surround with double brackets). List at least one, and as many as you find relevant. Existing goals are listed at http://policyatlas.org/wiki/Category:Education, http://policyatlas.org/wiki/Category:Public_Finance and http://policyatlas.org/wiki/Category:Transportation.-->
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* [[Has goal of:: Increase the funding available for government capital projects]]
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* [[Has goal of:: Increase the funding available for government operations]]
  
 
=====Example=====
 
=====Example=====
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As a result of a tax provision that allows corporations to defer tax payments on income earned abroad until they are repatriated, a national government is forgoing a major share of tax revenues and investments in its economy. It, therefore, decides to offer corporations a one-year window in which they can repatriate any profits earned abroad at a discounted tax rate. However, the government mandates that repatriated income can only be spent on job creating investment, and not on dividend payments, stock repurchases, or executive compensation. As a result, the country sees money being invested in its economy and increased tax revenues, which it uses to fund an ambitious infrastructure overhaul. project.  
<!--Replace above note with a narrative description of an example in which this policy would be successfully applied in furtherance of its policy goals. ~75-100 words.-->
 
  
 
=====Tradeoffs=====  
 
=====Tradeoffs=====  
 
Tradeoffs of implementing this policy may include:
 
Tradeoffs of implementing this policy may include:
# Click "edit" to add examples of tradeoffs or offsetting drawbacks of implementing the policy.  
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# Encouraging multinational corporations to keep foreign earnings abroad by raising expectations of future tax repatriation holidays and therefore causing long-term revenue short-fall.
<!--Describe any tradeoffs or offsetting drawbacks of implementing the policy. List at least 5 tradeoffs.-->
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# Rewarding those corporations who have most successfully hoarded their profits in overseas tax havens.
 
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# Not fixing the uncompetitive “worldwide” tax system that taxes the income U.S. based multinationals corporations earn abroad.
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# Creating difficulty in monitoring how companies spend repatriated funds.
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# Not stimulating the economy, as repatriated funds might simply free up money that would have been invested and created jobs anyways.
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# Missing opportunities, as some of the repatriated earnings could be returned to the country at a later stage at a higher tax-rate.
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=====Compatibility Assessment=====  
 
=====Compatibility Assessment=====  
 
If answered yes, the following questions indicate superior conditions under which the policy is more likely to be appropriate:
 
If answered yes, the following questions indicate superior conditions under which the policy is more likely to be appropriate:
# Click "edit" to add questions that help inform when the policy is most appropriate.
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# Is the income that is earned abroad by domestic corporations taxed only upon its remittance back into the country (tax deferral)?
<!--Describe key factors that demonstrate when the policy is most appropriate. For example, "Are current school textbooks outdated or in short supply?" would be a question to assess whether or not a new policy to use online or digital textbooks might be most effective. List at least 5 questions.-->
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# Is the policy accompanied by a tax reform that will prevent the need for future tax holidays?
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# Does the policy limit the use of repatriated funds to investment activities leading to economic and job growth?
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# Can repatriated funds be supervised properly to monitor their investment in economic stimulus activities?
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# Can tax reduction rate be tied to an increase in economic activity (such as job growth for instance)?
  
 
=====Design=====  
 
=====Design=====  
 
The following questions should be considered when determining ''how'' to implement this policy:
 
The following questions should be considered when determining ''how'' to implement this policy:
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# Will there be a cap for repatriation?
<!--Describe key questions that must be considered in establishing the scope, depth, or eligibility of the policy. For example, "What will be a maximum income level for beneficiaries of this policy?" List at least 5 questions.-->
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# What will be the maximum deduction?
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# What will be the tax reduction?
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# Can the tax reduction be flexible and adjusted to certain parameters?
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# Who will be the prime beneficiaries of the policy, can alternative policies be taken to repatriate income from these corporations?
  
  
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=====PolicyGraphics=====
 
=====PolicyGraphics=====
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*Has adoption of: [[Has adoption of:: Limited]].  
 
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As of fall 2015, only the United States has adopted a one-time “dividend repatriation tax holiday” as part of the American Jobs Creation Act of 2004. According to the U.S. tax code, U.S. based companies do not have to pay taxes on income earned abroad through its subsidiaries until these are remitted to the United States. In addition, in order to avoid double-taxation, companies are given tax credits for taxes paid abroad. The tax repatriation holiday reduced the rate of repatriated foreign income to 5.25%, down from the statutory 35% corporate tax rate. In addition, companies had to adopt domestic investment plans that committed to expand operations in the United States, boosting capital spending, economic growth, and job creation for qualifying repatriations.
*Has adoption of: [[Has adoption of::Click "edit" to insert]]. <ref> INSERT a reference. </ref>
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<ref> Marples, Donald, and Gravelle, Jane. “Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis.” Congressional Research Service, May 27, 2011. http://www.ctj.org/pdf/crs_repatriationholiday.pdf </ref>
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*For governance level(s): [[For Governance Level:: National]].
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*For issue type(s): [[For Issue Type:: Finance]].
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=====Adopters=====
 
=====Adopters=====
 
*Notable entities who have implemented or adopted this policy include:  
 
*Notable entities who have implemented or adopted this policy include:  
**[[Is adopted by::INSERT]] <ref> INSERT a reference </ref>
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**[[Is adopted by:: United States of America]] <ref> Browning, Lynnley. ”One-time tax break saved 843 U.S. corporations $265 billion.” The New York Times, June 24, 2008. http://www.nytimes.com/2008/06/24/business/worldbusiness/24iht-24tax.13933715.html?_r=0 </ref>
<!--Wherever possible, replace "INSERT" with a reference to a source that backs up claim. Please also attempt to refer to the parent executive level of government by which the policy is implemented. For example, rather than "NYC Department of Education" or "New York State Department of Education," please list "City of New York" or "State of New York" List at least 2 adopters.-->
 
  
  
 
===='''''STAKEHOLDERS'''''====
 
===='''''STAKEHOLDERS'''''====
 
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<!--Leave four hyphens in the line above this note, as they create a dividing line for formatting purposes. List at least 2 stakeholders.-->
 
  
 
=====Supporters=====  
 
=====Supporters=====  
*[[Is supported by::INSERT]]. Assumption: INSERT. <ref> INSERT a reference. </ref>
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*[[Is supported by:: Associations - Technology]]. Assumption: Technology companies are amongst the largest beneficiaries of tax repatriation holidays, as they rely on intellectual property for their profits, which makes it very easy to shift production to countries with lower corporate tax rates. Almost half of the repatriations in the 2004 US tax holiday came from companies in the technology and pharmaceutical industries. <ref> Marr, Chuck and Huang, Chye-Ching. “Repatriation Tax Holiday Would Lose Revenue And Is a Proven Policy Failure.” Center on Budget and Policy Priorities, June 19, 2014. http://www.cbpp.org//sites/default/files/atoms/files/6-19-14tax.pdf </ref>  
<!--Replace the first "INSERT" with the name of a stakeholder from the [[List of Education Stakeholders]]. Replace the second "INSERT" with a description of the assumption explaining when this stakeholder is likely to support this policy.-->
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*[[Is supported by:: Associations - Pharmaceutical]]. Assumption: The assumptions are the same as for the technology sector.
<!--Whenever possible, replace "INSERT" with a reference to a source that backs up claim. List at least 2 supporters.-->
 
 
    
 
    
 
=====Opponents=====
 
=====Opponents=====
*[[Is opposed by::INSERT]]. Assumption: INSERT. <ref> INSERT a reference. </ref>
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*[[Is opposed by:: Advocates - Progressive Taxation]]. Assumption: A tax repatriation holiday is very regressive tax policy, as it gives preference to large, profitable multinational corporations that earn income abroad and are able to keep it there for a prolonged period of time.  Advocates for progressive taxation would support some form of a restricted tax repatriation holiday (such as a compulsory “transition tax” proposed by President Obama in 2015) as part of a tax reform plan that would make international income of US companies taxable regardless of its remittance. <ref> Marr, Chuck and Huang, Chye-Ching. “Repatriation Tax Holiday Would Lose Revenue And Is a Proven Policy Failure.” Center on Budget and Policy Priorities, June 19, 2014. http://www.cbpp.org//sites/default/files/atoms/files/6-19-14tax.pdf </ref>  
<!--Replace the first "INSERT" with the name of a stakeholder from the [[List of Education Stakeholders]]. Replace the second "INSERT" with a description of the assumption explaining when this stakeholder is likely to support this policy.-->
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*[[Is opposed by:: Government Agencies - Departments of Budgets]]. Assumption: The CBO ranked repatriation ta holidays last in job stimulating policies as it has high budgetary implications and very little positive effect on the economy <ref> Marr, Chuck. “Corporate Tax Holiday Has No Place on Payroll Tax-Cut Extension Bill.” Center on Budget and Policy Priorities, December 8 2011.
<!--Whenever possible, replace "INSERT" with a reference to a source that backs up claim. List at least 2 opponents.-->
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http://www.cbpp.org/blog/corporate-tax-holiday-has-no-place-on-payroll-tax-cut-extension-bill.</ref>
  
  
 
===='''''REFERENCES'''''====
 
===='''''REFERENCES'''''====
 
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=====Research=====
 
=====Research=====
*[Click "edit" to insert links].
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*Gruber, Jonathan. (2011). “Public Finance and Public Policy.” Chapter 24. Worth Publishers. New York, NY.
<!--List any scholarly or original research on the effectiveness of the policy, including hyperlinks. Hyperlinks are added by surrounding text with brackets that includes the link itself as well as the text desired to appear in place of the link. For example, for a link to PolicyAtlas, one would add "[http://policyatlas.org PolicyAtlas] List at least 3 pieces of scholarly research.-->
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*[http://www.heritage.org/research/reports/2013/10/impact-of-repatriation-holiday-on-the-economy-jobs-and-investment A Repatriation Holiday Would Not Create Jobs]. (2013) The Heritage Foundation. October 31, 2013.
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*[https://tippie.uiowa.edu/accounting/phd/publications/wilson_examining.pdf Examining Investor Expectations Concerning Tax Savings on the Repatriations of Foreign Earnings under the American Jobs Creation Act of 2004]. Oler, Mitchell, Shevlin, Terry and Wilson, Ryan. (2007). Journal of the American Taxation Association. Vol 29(2). pp. 25-55.
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*[http://www.ctj.org/pdf/crs_repatriationholiday.pdf Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis]. Marples, Donald J. and Gravelle, Jane G. (2011) Congressional Research Service. June 19, 2014.
  
 
=====Resources=====
 
=====Resources=====
*[Click "edit" to insert].
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*[http://www.cbpp.org//sites/default/files/atoms/files/6-19-14tax.pdf Repatriation Tax Holiday Would Lose Revenue And Is a Proven Policy Failure]. Marr, Chuck and Huang, Chye-Ching. (2014) Center on Budget and Policy Priorities
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*[http://www.wsj.com/articles/SB1000142405297020363310457662377102212988 Report: Repatriation Tax Holiday a 'Failed' Policy]. Peterson, Kristina. (2011) Wall Street Journal
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*[http://taxfoundation.org/blog/why-permanent-repatriation-holiday-rather-temporary-fix-prudent-policy  Why a Permanent Repatriation Holiday, Rather Than a Temporary Fix, Is Prudent Policy]. Logan, David. (2011) Tax Foundation
  
 
=====Footnotes=====
 
=====Footnotes=====
 
<references />
 
<references />
<!--Leave the "<references / >" note above this line, as it tells the page where to list all of the footnotes from the sources cited earlier in the article.-->
 
  
 
=====Related Policies=====
 
=====Related Policies=====
*[[Click "edit" to insert]]
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*[[Tax reform]]
 
<!--List any and all policy concepts that are related to this policy as offsetting policies, complementary policies, or alternative policies. Surround each policy with double-brackets to link to page.-->
 
<!--List any and all policy concepts that are related to this policy as offsetting policies, complementary policies, or alternative policies. Surround each policy with double-brackets to link to page.-->
  
 
<!-- ====='''''Classification'''''===== -->
 
<!-- ====='''''Classification'''''===== -->
[[Category:Click "edit" to insert]]  
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[[Category:Public_Finance]]  
<!--List the policy category (e.g., "Category:Education", "Category:Public_Finance" or "Category:Transportation" in double brackets.-->
 
  
 
{{Notes}}
 
{{Notes}}

Revision as of 16:25, 20 November 2015

A tax repatriation holiday (also: “repatriation tax holiday” or “repatriated tax break”) is a one-time tax-break that allows multinational corporations to repatriate income earned abroad back to their home country at a discounted tax rate. The underlying theory is that multinational corporations will not transfer income back to the country, in which their headquarters are located, if the income earned abroad will be taxed at a higher domestic tax rate than the foreign tax rate. Therefore, a tax repatriation holiday serves as an incentive to multinational corporations to invest the money in their home economy rather than keeping it abroad.


CONCEPT


Goals
Example

As a result of a tax provision that allows corporations to defer tax payments on income earned abroad until they are repatriated, a national government is forgoing a major share of tax revenues and investments in its economy. It, therefore, decides to offer corporations a one-year window in which they can repatriate any profits earned abroad at a discounted tax rate. However, the government mandates that repatriated income can only be spent on job creating investment, and not on dividend payments, stock repurchases, or executive compensation. As a result, the country sees money being invested in its economy and increased tax revenues, which it uses to fund an ambitious infrastructure overhaul. project.

Tradeoffs

Tradeoffs of implementing this policy may include:

  1. Encouraging multinational corporations to keep foreign earnings abroad by raising expectations of future tax repatriation holidays and therefore causing long-term revenue short-fall.
  2. Rewarding those corporations who have most successfully hoarded their profits in overseas tax havens.
  3. Not fixing the uncompetitive “worldwide” tax system that taxes the income U.S. based multinationals corporations earn abroad.
  4. Creating difficulty in monitoring how companies spend repatriated funds.
  5. Not stimulating the economy, as repatriated funds might simply free up money that would have been invested and created jobs anyways.
  6. Missing opportunities, as some of the repatriated earnings could be returned to the country at a later stage at a higher tax-rate.
Compatibility Assessment

If answered yes, the following questions indicate superior conditions under which the policy is more likely to be appropriate:

  1. Is the income that is earned abroad by domestic corporations taxed only upon its remittance back into the country (tax deferral)?
  2. Is the policy accompanied by a tax reform that will prevent the need for future tax holidays?
  3. Does the policy limit the use of repatriated funds to investment activities leading to economic and job growth?
  4. Can repatriated funds be supervised properly to monitor their investment in economic stimulus activities?
  5. Can tax reduction rate be tied to an increase in economic activity (such as job growth for instance)?
Design

The following questions should be considered when determining how to implement this policy:

  1. Will there be a cap for repatriation?
  2. What will be the maximum deduction?
  3. What will be the tax reduction?
  4. Can the tax reduction be flexible and adjusted to certain parameters?
  5. Who will be the prime beneficiaries of the policy, can alternative policies be taken to repatriate income from these corporations?


ADOPTION


PolicyGraphics

As of fall 2015, only the United States has adopted a one-time “dividend repatriation tax holiday” as part of the American Jobs Creation Act of 2004. According to the U.S. tax code, U.S. based companies do not have to pay taxes on income earned abroad through its subsidiaries until these are remitted to the United States. In addition, in order to avoid double-taxation, companies are given tax credits for taxes paid abroad. The tax repatriation holiday reduced the rate of repatriated foreign income to 5.25%, down from the statutory 35% corporate tax rate. In addition, companies had to adopt domestic investment plans that committed to expand operations in the United States, boosting capital spending, economic growth, and job creation for qualifying repatriations. [1]

Adopters


STAKEHOLDERS


Supporters
  • Associations - Technology. Assumption: Technology companies are amongst the largest beneficiaries of tax repatriation holidays, as they rely on intellectual property for their profits, which makes it very easy to shift production to countries with lower corporate tax rates. Almost half of the repatriations in the 2004 US tax holiday came from companies in the technology and pharmaceutical industries. [3]
  • Associations - Pharmaceutical. Assumption: The assumptions are the same as for the technology sector.
Opponents
  • Advocates - Progressive Taxation. Assumption: A tax repatriation holiday is very regressive tax policy, as it gives preference to large, profitable multinational corporations that earn income abroad and are able to keep it there for a prolonged period of time. Advocates for progressive taxation would support some form of a restricted tax repatriation holiday (such as a compulsory “transition tax” proposed by President Obama in 2015) as part of a tax reform plan that would make international income of US companies taxable regardless of its remittance. [4]
  • Government Agencies - Departments of Budgets. Assumption: The CBO ranked repatriation ta holidays last in job stimulating policies as it has high budgetary implications and very little positive effect on the economy [5]


REFERENCES


Research
Resources
Footnotes
  1. Marples, Donald, and Gravelle, Jane. “Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis.” Congressional Research Service, May 27, 2011. http://www.ctj.org/pdf/crs_repatriationholiday.pdf
  2. Browning, Lynnley. ”One-time tax break saved 843 U.S. corporations $265 billion.” The New York Times, June 24, 2008. http://www.nytimes.com/2008/06/24/business/worldbusiness/24iht-24tax.13933715.html?_r=0
  3. Marr, Chuck and Huang, Chye-Ching. “Repatriation Tax Holiday Would Lose Revenue And Is a Proven Policy Failure.” Center on Budget and Policy Priorities, June 19, 2014. http://www.cbpp.org//sites/default/files/atoms/files/6-19-14tax.pdf
  4. Marr, Chuck and Huang, Chye-Ching. “Repatriation Tax Holiday Would Lose Revenue And Is a Proven Policy Failure.” Center on Budget and Policy Priorities, June 19, 2014. http://www.cbpp.org//sites/default/files/atoms/files/6-19-14tax.pdf
  5. Marr, Chuck. “Corporate Tax Holiday Has No Place on Payroll Tax-Cut Extension Bill.” Center on Budget and Policy Priorities, December 8 2011. http://www.cbpp.org/blog/corporate-tax-holiday-has-no-place-on-payroll-tax-cut-extension-bill.
Related Policies



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