Announcing the Repatriation of Indefinitely Reinvested Earnings

Abstract

The extent to which firms repatriate indefinitely reinvested foreign earnings (IRFE) has been a major issue in the US tax system. Congress enacted provisions in the 2017 Tax Cuts and Jobs Act (TCJA) specifically to remove tax barriers to repatriation. However, little is known regarding the repatriation of IRFE outside of the temporary tax incentive provided by the 2004 American Jobs Creation Act (AJCA). In this chapter, I provide evidence on such repatriations by identifying a sample of 67 firms from 2009 to 2015 that reverse the indefinite reinvestment designation of foreign earnings and announce a repatriation of foreign cash. In contrast to repatriations following the 2004 AJCA, I do not find evidence that a single economic factor, such as share repurchases, motivates the repatriation. Although, in general, I do not find evidence of a significant market response to the announcements, I find evidence of a negative market reaction to announcements by low foreign effective tax rate (ETR) firms without tax offsets, suggesting that the tax may not be fully priced. Overall, I provide insight into the reasons and implications of the announced repatriation of IRFE.

Citation

Krieg, K.S. (2021), "Announcing the Repatriation of Indefinitely Reinvested Earnings", Hasseldine, J. (Ed.) Advances in Taxation (Advances in Taxation, Vol. 29), Emerald Publishing Limited, Leeds, pp. 25-64. https://doi.org/10.1108/S1058-749720210000029002