Abstract

To encourage Taiwan-based enterprises to utilize worldwide resources and expedite globalization, Taiwan government advocates the operational headquarter policy, providing tax-exemption on remitted foreign dividends for companies setting up operational headquarters in Taiwan. The stated policy objective for the tax incentives of operational headquarters is to increase the remittance of Taiwan-based enterprises' foreign dividends, thereby tunneling overseas capitals back to Taiwan. Using data spanning before and after implementation of the tax incentives for operational headquarters, this study examines the impact of the tax incentives on the remittance of foreign investment income. Our results show that ceteris paribus, companies setting up operational headquarters in Taiwan remit more foreign dividends back to Taiwan than their matched-samples without setting up operational headquarters. Further, after setting up operational headquarters, companies appear to increase their remittance of foreign dividends back to Taiwan, and those companies with greater noncurrent deferred income tax liabilities appear to increase more remittance of foreign dividends back to Taiwan. The results suggest that the tax incentives of operational headquarters have a positive impact on increasing the remittance of foreign dividends back to Taiwan.