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Repatriation Taxes And Foreign Direct Investment: Evidence From Tax Treaties

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Executive Summary

This paper examines the effects on foreign direct investment of worldwide versus territorial tax systems. Canada operates a hybrid system of international taxation, under which dividends repatriated from affiliates located in tax treaty partner countries are exempt from domestic taxation, while repatriations from non-treaty countries are subject to a foreign tax credit regime similar to that of the United States. Exploiting the within-country variation in tax rates on repatriations induced by new tax treaties signed by Canada since 1975, the author estimates the impact of repatriation taxes on foreign direct investment of Canadian multinational corporations.

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