Abstract
The user cost of capital for a subsidiary is derived when the capital exporter uses the deferral method for the taxation of the parent's foreign-source income. The Hartman-Sinn result implying that the capital exporter's tax on remitted dividends is irrelevant to a subsidiary using retentions to finance investment is shown to be correct only when host and home countries have similar corporate income tax bases. Otherwise, both the home and host country corporate tax provisions influence the cost of capital. It is also shown that a cash flow tax by the capital importer is not neutral owing to interactions with the capital exporter's tax regime.
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