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5 Nw. J. L. & Soc. Pol'y 1 (2010)

handle is hein.journals/nwjlsopo5 and id is 1 raw text is: Copyright 2010 by Northwestern University School of Law                       Volume 5 (Spring 2010)
Northwestern Journal of Law and Social Policy
What Happens After a Holiday?: Long-Term
Effects of the Repatriation Provision of the AJCA
Thomas J. Brennan*
I. INTRODUCTION
The American Jobs Creation Act of 2004 (AJCA) granted a tax holiday to U.S.
corporations with foreign subsidiaries, allowing the subsidiaries to remit certain funds to
their parents at a much lower tax rate than previously possible.' The holiday applied only
to repatriations occurring before the second fiscal year-end following enactment of the
law, allowing firms between one and two years to make qualifying transfers.2 Many
firms acted during this window of opportunity, and foreign subsidiaries distributed more
than $300 billion in qualifying dividends to their U.S. parents.3
Scholars have studied various economic consequences of the tax holiday. Some
studies have investigated the law's impact on stock market prices,4 while others have
analyzed the ways in which the repatriated cash has been put to use.5 One question that
* Assistant Professor of Law, Northwestern University School of Law; Juris Doctor, 2001, Harvard Law
School; Doctor of Philosophy in Mathematics, 1998, Harvard University; Master of Arts, 1995, Harvard
University; Bachelor of Arts, 1994, Princeton University. The author thanks Benjamin Stoep and Ajay
Singh for excellent research assistance in the collection of data used in this article. The author also thanks
Charlotte Crane, Ed Kleinbard, and Nancy Staudt for helpful comments and discussion, as well as
participants at the Section on Taxation Panel of the American Association of Law Schools Annual Meeting
held in January 2010. Any mistakes are the sole responsibility of the author.
1 The AJCA provided for the holiday by creating I.R.C. § 965, a new section of the Internal Revenue Code.
The AJCA had many other provisions as well, but the focus of the analysis in this paper is the tax holiday
for repatriated earnings. American Jobs Creation Act of 2004, Pub. L. No. 108-357, 118 Stat. 1418.
2 I.R.C. § 965(f) (2006) restricts the time during which the election can occur. The taxable year mentioned
in § 965(f) is generally the same as the fiscal year.
3 See Melissa Redmiles, The One-Time Dividend Received Deduction, IRS STAT. OF INCOME BULL., Spring
2008, at 102, available at http://www.irs.gov/taxstats/article/0,,id=183 126,00.html.
4 For evidence of negative abnormal stock returns around the time of enactment of the AJCA for firms that
would later choose to repatriate, see generally Thomas J. Brennan, Cash-Flow and Market Response to
Repatriation (paper presented at 3rd Annual Conference on Empirical Legal Studies, 2008), available at
http://ssrn.com/abstract 1134040. For additional findings, see generally Ramin Baghai, Corporate
Governance and Extraordinary Earnings Repatriations: Evidence from the American Jobs Creation Act
(paper presented at AFA 2010 Atlanta Meetings, 2009), available at http://ssrn.com/abstract=1311429.
But see Mitchell Oler, Terry Shevlin & Ryan Wilson, Examining Investor Expectations Concerning Tax
Savings on the Repatriations of Foreign Earnings under the American Jobs Creation Act of2004, 29 J. AM.
TAX'N Ass'N 25-55 (2007), for evidence that there may have been a long-term abnormal increase in stock
performance.
For evidence that repatriated funds were used to return value to shareholders, primarily through the
repurchase of stock, see Jennifer L. Blouin & Linda K. Krull, Bringing It Home: A Study of the Incentives
Surrounding the Repatriation of Foreign Earnings Under the American Jobs Creation Act of 2004 (July 21,
2008) (unpublished manuscript), available at http://ssrn.com/abstract=925348; see also Dhammika
Dharmapala, C. Fritz Foley & Kristin J. Forbes, Watch What IDo, Not What ISay: The Unintended
Consequences of the Homeland Investment Act (MIT Sloan, Research Paper No. 4741, presented at CELS
2009 4th Annual Conference on Empirical Legal Studies, 2009), available at
http://ssrn.com/abstract=1337206. But see Brennan, supra note 4, and Mitchell A. Petersen & Michael W.

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