The Foreign Source Income Repatriation Patterns of US Parents in Worldwide Loss

Abstract

On average, 40 percent of US corporations with foreign source income are not taxable because they are in loss, and annually these loss firms are responsible for about 13 percent of foreign source dividend repatriations. Yet the repatriation behavior of these US parents in loss has largely been overlooked, both in policy analysis and in the economic literature. This study uses a balanced panel of US income tax returns from 1998 to 2002 in order to examine the repatriation behavior of US parents in loss. The panel data allows us to relate the repatriation behavior of individual US parents to their income status. The paper demonstrates that the unique incentives facing firms in loss years can cause the repatriation behavior in loss years to differ systematically from repatriation behavior in income years. As a result of this finding, it may be prudent for those who analyze dividend repatriation to incorporate the unique incentives facing US parents in loss in order to improve the accuracy of empirical estimates of the effects of taxes on repatriation.