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An Empirical Investigation on the Effect of Imputation Credits on the Remittance of Overseas Dividends
Ming - Chin Chen,
National Chengchi University
ABSTRACT. Despite that multinational corporations (MNCs) have been playing an increasingly important role in Chinese fast economic growth, little prior studies have addressed the repatriation of dividends from MNCs’ Chinese subsidiaries to parent companies. In the context of imputation systems, this paper studies the dividend remittance of Taiwan-based companies from Chinese subsidiaries to their parent companies. We found that imputation credits have a positive effect on increasing foreign dividend payouts, achieving the effect as territorial tax systems in improving the efficiency loss induced by tax cost for within-firm dividends. We also documented evidence that parent companies’ net fund flows from related-party transactions with their Chinese subsidiaries are negatively correlated with dividends repatriated from those affiliates, supporting that transfer-pricing may be used to shift income among MNCs’ affiliates and thus reduce the need for within-firm dividend remittance.
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