Policy Documents

The Differential Influence of U.S. GAAP and IFRS on Corporations’ Decisions to Repatriate Earnings of Foreign Subsidiaries

Barry Jay Epstein and Lawrence G. Macy –
April 1, 2011

During the highly charged and largely uninformative 2010 election season, a number of candidates attempted to make political capital out of the alleged “tax breaks” given to domestic corporations that do business overseas. The implied assertion was that certain incumbents had supported favorable treatment for companies moving jobs and investment to other countries, to the detriment of the domestic economy, balance of trade, and employment opportunities in the United States. Although the allegation was rarely fully detailed—in the way that such negative ads typically, and necessarily, are not—it appears that some or most of the accusations were alluding to the longstanding tax regulations that defer U.S. corporate income taxes on most earnings of foreign subsidiaries of domestic corporations until they are remitted, or repatriated, via dividend payments made to the parent company. (Note that certain passive sources of foreign earnings, such as interest and dividends, are taxed currently as so-called “passive Subpart F” income. Thus, the following discussion pertains only to active sources of earnings, which generally are pro? ts derived from such business operations as manufacturing or merchandising activities.)