Foreign operations The first explanation relates to the growing significance of foreign operations of U.S. multinationals in countries with lower corporate tax rates and the recent accumulation of earnings retained by the foreign subsidiaries.
When U.S. multinationals receive dividends from their foreign subsidiaries and the host country levies a lower tax rate than the U.S. corporate tax rate, any repatriated dividends are subject to U.S. corporate taxes. Thus, many companies have an incentive to leave those funds with their foreign subsidiaries, even if the funds far exceed plans for foreign capital expenditures.