Corporate shareholders shouldn’t expect a big payout if the U.S. moves to a territorial system where multinationals can repatriate their foreign profits without paying heavy taxes on them.

A study in the July/August issue of the American Accounting Association’s journal The Accounting Review by Professor Michelle L. Nessa of Michigan State University investigated the impact of repatriation tax costs during two periods: the repatriation tax holiday authorized by the American Jobs Creation Act of 2004 and the economic dislocations caused by the Great Recession of 2008.

She drew on data from hundreds of U.S. multinationals during the 18 years prior to the American Jobs Creation Act, analyzing the relationship between corporate payouts to shareholders through dividends or stock repurchases and, on the other hand, the tax cost that companies incurred in repatriating foreign profits (essentially, the difference between tax rates in the countries where the earnings occurred and the higher U.S. tax rate).

The research offered evidence of the ability of multinationals to find ways to provide shareholder payouts other than through repatriation of foreign earnings. Nessa found that, in general, the greater the cost of repatriation, the less likely companies were to pay dividends to shareholders and the less extravagant the dividends they awarded were likely to be.

“If shifting to a territorial system results in more payouts to shareholders, it will most likely occur at financially constrained firms, which constitute a minority of U.S. multinationals,” said Nessa. “But will such a reform occasion a bonanza for the majority of multinationals’ shareholders? That does not seem likely. When it comes to payouts, many companies seem to have worked their way around this particular tax barrier already.”

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