INCENTIVE EFFECTS OF FOREIGN TAX CREDITS ON MULTINATIONAL-CORPORATIONS

The United States tax code allows multinational corporations to credit tax payments made to foreign treasuries against domestic tax obligati ons, up to their United States tax liability on foreign-source income. If foreign tax payments exceed the United States tax liability on for eign-source income, the corporation is said to be in excess credits. W e study how the incentives for investment abroad through foreign subsi diaries change as parent corporations transit into and out of excess c redits. We also examine how the presence of foreign tax credit carry-f orwards affects tax-related investment incentives.