Global organizations and taxes: An analysis of the dividend, interest, royalty, and management fee payments between US multinationals' foreign affiliates

We examine the effects of taxes on cross-border dividend, interest, royalty, and management fee payments between foreign affiliates of U.S, multinationals. Using 1990 tax return information on transfers totaling $22.8 billion and spanning 71 countries, we find dividend, royalty, and sometimes interest payments between foreign affiliates are negatively correlated with the net tax levied on cross-border transfers. We find no evidence management fees are structured to mitigate non-U.S. taxes. Thus, taxes affect the location of the supplier and the terms of the contracts for the provision of equity and intangible capital within the worldwide organization. (C) 1998 Elsevier Science B.V. All rights reserved.