LINKAGES BETWEEN TAX SYSTEMS: AN ANALYSIS OF THE CORPORATE TAX CONSEQUENCES OF TRANSFERRING ROYALTIES, INTEREST AND DIVIDENDS BETWEEN GERMANY, JAPAN AND THE UNITED STATES (FOREIGN TAX CREDIT)

Tax is a cost of doing business. The focus of this investigation is the total direct taxes incurred when an affiliate of a multinational corporation earns income and remits a portion of it to its corporate owner in another country. The taxes are determined from a model that simulates the tax calculation of a hypothetical corporate investor. This tax analysis is used to address the question how the 1986 Tax Reform Act may have changed the relative tax costs of operating foreign affiliates of multinational corporations headquartered in Germany, Japan, and the United States.; The model reveals the possible consequences of the tax rules of Germany, Japan and the United States as they apply to corporate taxpayers with transnational income in 1985, 1988 and 1992 (projected). Each country is assumed to be the home of a hypothetical investor, and each investor is assumed to operate an affiliate in each of the three countries. Graphs illustrate the sensitivity of the tax burden with respect to decisions made by the investor: the mix of royalties, interest and dividends in the remittance and the dividend policy in the home country.; Using slightly restrictive assumptions, the model-based quantitative analysis presented demonstrates how the capital structures of American-owned foreign affiliates, that had been optimized from a tax point of view before the reform, have become suboptimal after 1986. It also demonstrates how American investors in 1988 differed from their German and Japanese competitors by paying a higher total tax when a foreign (as opposed to a domestic) affiliate remits funds.; The dissertation gives explicit consideration to the simulated tax cost of alternative modes of foreign investment. It contributes to the literature of tax policy by the simultaneous modeling and analysis of American, German, and Japanese rules for taxing transnational income.