Research On The Impact Of Dividend Repatriations Tax Reduction On Chinese Multinational Corporations

At present,China's development has entered into the new normal state.We should adapt to the new characteristics of the development phase of the Chinese economy.The pace of economic growth has slowed down.Some domestic industries have faced with serious issues of overcapacity.Foreign investment plays an important role in China's economic restructuring.Tax avoidance is an important reason for companies to invest in foreign countries.Will multinational affiliates change their investment strategies in response to a big drop on dividend repatriations tax?This issue has aroused widespread concern around China.I tried my best to discuss this issue in this article.In the past,some academics insisted that a big drop on dividend tax could make corporations increase investment.However,other researches proved that dividend tax reduce could only encourage corporations to distribute more dividends but has nothing to do with investment.Dividend repatriations tax reduction from 2008 increases foreign investment or encourages more dividend distribution is the core problem I want to solve in this article.Firstly,this paper briefly describes the main contents of the 2008 enterprise income tax reform,and analyzes that this reform may reduce the dividend repatriations tax of multinationals.Based on the previous analysis,this paper proposes several hypothesis.The first one is that dividend repatriations tax reduction makes multinationals increase foreign investment and dividend distribution.The second one is that cash constrained multinational corporations respond more violently to the tax change.Secondly,this paper uses the data in BvD global listed companies database to test whether the hypothesis is true.Decrease in multinational dividend repatriations tax in 2008 was regarded as an exogenous shock.This paper uses a difference-in-difference research design to investigate the impact of the reform on multinational affiliates' investment and dividend distribution.The empirical results show that the decrease of dividend repatriations tax has promoted multinational corporations' investment in low tax countries.However,investments in middle tax and high tax countries do not significantly change since these corporations were not affected by the dividend repatriations tax reform.Dividend repatriations tax decreasing does not have any significant effect on multinational corporations' dividend distribution,because most of Chinese multinational corporations are in rapid growth and prefer investing not paying dividends.