Japanese multinational corporations and corporate tax change

Abstract

This paper examines the impact of the recent changes in Japanese taxation polices before and after the shift from a global taxation system to a territorial taxation system in 2009 on the income shifting activities of Japanese multinationals. The study aims to investigate whether the territorial taxation system accelerated aggressive transfer pricing and shifting of domestic income overseas, in line with recent studies. Moreover, this research identifies the factors that encouraged intrafirm trade within listed Japanese non-financial transnational corporations and their income shifting behaviour in response to various taxation policies in different jurisdictions. The two-stage least squares random estimation techniques are used to examine the level of income shifting behaviour before and after the taxation system reform, using a pooled sample of 460 foreign affiliates of Japanese manufacturing corporations during the period of 2000 to 2016. The empirical results provide evidence supporting the hypothesis of that income shifting between territorial jurisdictions done by Japanese multinationals is more effective in terms of profit repatriation.