Department of Finance Working Papers

Document Type

Unpublished Paper

Publication Date



We examine the effect of a permanent change to a country income repatriation tax system on a set of corporate financial policies. In 2009 Japan and UK switched from a worldwide system to a territorial system for the taxation of earnings repatriated by their multinational firms. Due to the relatively high corporate tax rate in Japan and UK, the new system effectively reduced the tax liabilities of most multinational firms when repatriating earnings. We find that after the change Japanese and UK firms accumulate less cash, pay out larger amounts to shareholders through dividends and share repurchases, and invest less abroad. We do not find that the tax system change has significantly affected corporate domestic investments.