Dividend Tax Research Articles

Revenue Trend Analysis of Bharatpur Metropolitan City (BMC), Nepal

The present study aims to explore a comprehensive analysis of the revenue trends with special focus on the case of Bharatpur Metropolitan City. The study adopts a quantitative research design, employing document analysis, and an observation checklist. This study presents findings over the last 13 years 2067 to 2079, focusing on three key headings: Tax related to Land and Property, Service fee and Tariff and Dividend tax. Tax related to Land and Property encompasses taxes such as property tax, Malpot tax, business tax, house rent tax and homeland registration tax it exhibited the most substantial growth. Service fee and tariff represent the total sum of service fees and tariff, including fees for Building permits, event registration, and fines, relationship certification, education fees, electricity fees and parking fees. This variable showed initial growth but also experienced fluctuations. Dividend tax includes vehicle tax, entertainment tax, and advertising tax, showing modest yet steady growth, despite having the smallest contribution, it displayed consistent growth. The study underscores the diverse contributions of these revenue sources, emphasizing the need for strategic planning to stabilize and enhance the financial health of BMC by optimizing each revenue stream’s potential.

Potential Tax Discrimination against Italian-Sourced Dividends and Capital Gains Received by Foreign Investment Funds Not Compliant with EU Regulatory Framework

This article delves into the complexities of cross-border taxation of Italian-sourced dividends and capital gains paid to Italian and foreign investment funds. More specifically, the authors scrutinize whether Italy’s current domestic tax laws violate the EU fundamental freedoms, particularly regarding foreign funds that, despite not being subject to the UCITS or AIFM Directives, are subject to a regulatory framework similar to that imposed on Italian funds.

Dividend omissions and dividend cuts behaviour: a dynamic random-effect probit panel regression analysis

PurposeThe study aims to examine the dividend omissions and dividend cuts behaviour of manufacturing and non-financial services firms to identify the determinants of dividend omissions and dividend cuts.Design/methodology/approachThe study analyses the financial data of 3,546 firms from 2011 to 2020 (35,460 firm-year observations) using a dynamic random-effect probit panel regression model.FindingsThe results suggest that profitability, growth opportunity, leverage, liquidity, risk, extraordinary income, shareholding pattern and buyback are major determinants of dividend omissions. Similarly, dividend cut in the previous year, profitability, operating cash flow, risk and extraordinary income are major factors leading to dividend cuts.Research limitations/implicationsFirms which omit the dividend are less likely to start paying dividend in subsequent years, whereas firms which cut the dividend may increase dividend in later years. Also, profitability decreases for a significant number of firms post dividend omission and cut. This indicates that dividend omission is a more prominent signal than a dividend cut for the financial health of a firm.Practical implicationsThe determinants identified in the study enable analysts and portfolio managers to decide the propensity of dividend omission and cut even before actual announcements and can alleviate the significant loss in the portfolio. Also, managers and the board of directors would be able to monitor the firm’s financial performance to avoid the situation leading to dividend omissions and cuts.Social implicationsThe study strongly recommends that firms should voluntarily pay dividends to shareholders to encourage the healthy participation of retail shareholders in the equity market and create a long-term win–win situation for all stakeholders in society. If a large number of firms continue not to pay the dividend, the study appeals to the regulators to intervene to protect shareholders' interests for the greater good of society.Originality/valueTo the best of author’s knowledge, this is the first study to empirically identify the determinants of dividend omission and cut in the unique setting like India where dividend taxation had undergone a significant change.

Facing the economic tribunal: how calculative techniques impede effective finance capital taxation in Europe

ABSTRACT The rise of new financial transaction schemes enabled new forms of tax fraud in Europe in the 2010s. Despite extensive public attention to this issue, the political measures adopted to strengthen taxation control have remained remarkably lax. The article analyses the emergence and spread of US neoliberal problematisations of administrative burdens to the OECD, and how these problematisations coalesced with the development of standardized regulatory cost‒benefit techniques. Focusing on the Danish case, this constellation of problematizations and techniques is argued to have worked as an economic tribunal, effectively obstructing the control of tax dividend reclaims.

Mispricing and Anomalies: An Exogenous Shock to Short Selling from JGTRRA

We investigate the causal impact of short-sale constraints on market anomalies by analyzing a comprehensive set of 182 anomalies. Our approach leverages a persistent, robust, and plausibly exogenous shock to short-selling supply caused by the dividend tax law change in the Job and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003. Our findings reveal that anomalies decline after JGTRRA. However, this tax law change impedes arbitrageurs’ ability to correct mispricing, resulting in anomalies decaying less following dividend record months compared to other months post-JGTRRA. Furthermore, this effect is concentrated on overpriced stocks as opposed to underpriced stocks. Interestingly, while this shock significantly affects most types of anomalies, valuation anomalies remain unaffected.

Dividend Taxation and Financial Business Cycles

We examine the interactions between different dividend tax systems and financial shocks in a dynamic stochastic general equilibrium (DSGE) model with an occasionally-binding investment credit limit. We show that dividend taxes largely determine the collateral value of assets, thereby occasionally distorting investment decisions and altering the propagation of financial shocks. Permanently lower dividend taxes dampen financially-driven business cycles in a state-contingent fashion. They also help explain substantial macroeconomic asymmetries following equally-sized expansionary and contractionary financial shocks.

A Curious Concession? Australia’s Withholding Tax Exemption for Franked Dividends

This article considers the tax treatment of dividends paid by Australian companies to non-resident shareholders, which benefit from a withholding tax exemption to the extent that the dividend is “franked” under Australia’s imputation system. The article considers the appropriateness of maintaining the withholding tax exemption now that more than 35 years have passed since the imputation system was introduced in Australia in 1987. It examines the original rationale for introducing the exemption and questions whether that rationale remains valid in 2023, given changes to corporate and individual tax rates in the intervening periods. The article also notes that to a potentially significant extent, the ongoing availability of this concession benefits foreign revenue authorities where non-resident shareholders live in countries which maintain a “classical” approach to taxation of dividends and allow credits for foreign withholding tax to be offset against tax liabilities in the country of residence. The article concludes that a comprehensive policy-based review of the concession is long overdue, that removal or modification of the exemption should be considered, and that the potential additional Australian tax revenue resulting from changes to the concession could be significant.

Do share repurchases facilitate movement toward target capital structure? International evidence

We use a new international setting to test and strengthen identification of the “target leverage” hypothesis in the payout policy literature. We conduct a quasi-natural experiment induced by staggered share repurchase legalization in 17 economies and analyze its influences on leverage dynamics. After controlling for other repurchasing motives, firms under-leveraged before legalization are more likely to buy back shares immediately after legalization. Post-legalization repurchases also facilitate firms’ movement toward target leverage, especially when firms are under-leveraged. This facilitating effect is stronger under lower repurchasing restriction, higher dividend tax penalty, and lower financial constraint.

Individual investors’ dividend taxes and managerial myopia

We use a unique setting of the Dividend Tax Reform in China to investigate the impact of differential dividends taxation on managerial myopia. We find that firms prefer to mitigate managerial myopia when the dividends taxes imposed on their individual investors decrease. Moreover, additional analysis presents that the negative effect is more salient for firms with higher investor preference, larger proportions of individual investors, and greater myopic pressures. The results indicate that differential dividends taxation induced lock-in adversely affects managerial myopia.

Capital Taxation, Retained Earnings and Inequality: Evidence from Dividend Tax Reforms

Capital Taxation, Retained Earnings and Inequality: Evidence from Dividend Tax Reforms

Market Reaction Towards Dividen Tax Rate Changes of The Omnibus Law on Job Creation In Indonesia

This paper is to investigate the changes in the dividend tax rate effect on the stock price of the companies listed in Indonesia Stock Exchange (IDX) and to demonstrate the existence of abnormal returns by examining stock trading situations before and after the ex-dividend date. Standard event study methodology, using the market model, is employed to determine the abnormal returns surrounding the ex-dividend date. The findings are useful to researchers, practitioners and investors interested in companies listed on the Indonesian stock market for their proper strategic decision making. In particular, the results can be used to encourage transparency and good governance practices in the Indonesian stock market. This study is the first to use dividend tax rate data after the Introduction of the Omnibus Law on Job Creation and the Law on Harmonization of Tax Regulations. By using the event study method, the study reveals that there is no significant difference in abnormal returns prior to and following the ex-dividend date, both preceding and subsequent to the reduction in the new tax rate. Thus, the dividend tax rate reduction does not affect the market reaction in the event window.

Factors Affecting Dividend Policy and the Effect of Dividend Payout Policy on Stock Price Volatility in Omnibus Law Era

This research will examine the influence of factors affecting Dividend Policy and examine the effect of Dividend Payout Ratio to Stock Price Volatility in Omnibus Law Era. The method of this paper will be a quantitative and qualitative analysis. The data and sample are the financial statements in the year 2015-2020 that will be taken from Indonesia Stock Exchange (IDX) official website. This research proved that Management Ownership, Profitability (ROA) and Company Size influence Dividend Policy negatively. Meanwhile, Institutional Ownership, Profitability (ROI), Omnibus Law (Tax Dividend), Dividend Coverage Ratio, Liquidity Ratio, and Debt to Equity affected Dividend Policy positively.

Die Ertragsteuerbelastung von Kapitalgesellschaften in Deutschland

Abstract In an international comparison, Germany is a high-tax country. At around 30 %, the nominal tax burden for German corporations is almost ten percentage points above the EU average. Some assume that corporations‘ actual tax burdens are significantly reduced due to tax planning and profit shifting. However, this article shows, based on information from corporation and trade tax statistics, the real tax burden can be five to twelve percentage points higher than the nominal burden due to incomplete loss offsetting, the limited deduction of financing expenses and the (partial) taxation of corporate dividends.

Testing dividend tax theory: Firm and industry heterogeneity

The Jobs Growth and Tax Relief Reconciliation Act of 2003 cut the top dividend tax rate in the U.S. by more than half, yet numerous studies of nonfinancial firms have failed to detect the expected supply-side stimulus to capital investment. We test the impact of this tax cut on U.S. commercial banks and find that bank lending responded differently, conditional on banks’ access to external capital as well as their reliance on internal liquidity. Our heterogeneous results include support for all three branches of dividend tax theory. Loan growth increased the most at publicly traded banks with relatively illiquid balance sheets and increased by the least (or not at all) at untraded banks with relatively liquid balance sheets. Consistent with previous studies, we find increased dividend payouts at all subsets of banks. We conjecture that the effectively short maturities of bank loan contracts made banks better able to respond positively to this tax cut and provide some suggestive evidence in support of this conjecture.

Dividend policy and firm liquidity under the tax imputation system in Australia

PurposeThe primary goal of this paper is to investigate the relationship between stock market liquidity and firm dividend policy within a market implementing the tax imputation system. The main aim is to understand how the tax imputation system influences the relationship between firm dividend policy and stock market liquidity within a cross-sectional framework.Design/methodology/approachThis paper investigates the relationship between stock market liquidity and the dividend payout policy under the full tax imputation system in the Australian market. This study uses the Generalized Least Squares regressions with firm- and year-fixed effects.FindingsIn contrast to the negative relationship between the liquidity of common shares and the firms' dividends documented in countries with the double tax system, the study reveals that in Australia, the dividend payout ratios are positively associated with liquidity after controlling for various explanatory variables with both the contemporaneous and lagged time periods. Such a finding is robust to the use of alternative liquidity proxies and to the sub-period tests and remains during the COVID-19 pandemic period.Research limitations/implicationsThe insights derived from this study have significant implications for various stakeholders within the economy. The findings provide regulators with valuable insights to conduct a more holistic assessment of how the tax system impacts the economy, especially concerning the dividend choices of firms. Within the context of a full tax imputation system, investors can make investment decisions without factoring in the taxation impact. Simultaneously, firms can be relieved of concerns about losing investors who prioritize liquidity, particularly when a high dividend payout might not align optimally with their financial strategy.Originality/valueThis study contributes to the literature by extending the literature on the tax clientele effects on dividend policy, providing evidence that the tax imputation system can moderate the impact of liquidity on dividend policy. This study examines the impact of the dividend tax imputation system on the substitution effect between dividends and liquidity.

How much capital should be taxed? A review of the quantitative and empirical literature

AbstractThis paper reviews the literature providing quantitative and empirical results on capital taxation. In doing this, we differentiate between individual and corporate taxes, respectively. From existing literature, it emerges that capital income taxes for individuals increase with the degree of heterogeneity within the population, market competition, and the economy's maturity, being negative (i.e., subsidy) in the presence of monopolistic competition or developing countries, no higher than 15% in Mirrleesian economies and as high as 45% when coupled with incomplete insurance markets and labor income taxes in competitive‐closed economies. Excessively high wealth tax rates for redistributive purposes, however, are prevented by the larger tax elasticity of rich (−1.15) with respect to poor (−0.09) individuals. Negative tax elasticities concerning employment (from −0.5 to −0.2), innovation (from −2.8 to −1.3), and investments (−4.7) suggest low corporate taxes, whose magnitude should be negatively related to the degree of the economy's openness, given also the possibility for firms to relocate abroad. Finally, although still inconclusive, the main conclusions concerning dividend taxes suggest that tax rates increase with the firm's size and, thus, be set at low levels for start‐ups.

Individual investors’ dividend tax reform and investment efficiency

This paper examines the effect of individual investors' dividend tax on corporate investment efficiency. Investment efficiency is closely related to increases in firm value and investor wealth, but the effect of tax incentive on investment efficiency is relatively unknown. By introducing plausibly exogenous dividend tax reform (DTR) for individual investors in China, we find that reducing dividend tax for individual investors significantly improves corporate investment efficiency. From the perspective of individual investor supervision, we find that the effect is particularly pronounced for firms with severe agency problems and inadequate supervision. Furthermore, evidence from firm innovation shows that DTR increases the attention on the firm's long-term development. Finally, we find that DTR reduces the level of investment but promotes the financialization of firms, implying that DTR primarily encourages firms to increase investment in high-return projects. Overall, our findings suggest that taxation can be used as an incentive to encourage individual shareholders to take on a supervisory role and thus improve the efficiency of resource allocation.

Shareholder tax cuts with household and firm heterogeneity

The large reduction in dividend tax rates stipulated in the Jobs and Growth Tax Relief Reconciliation Act of 2003 has been found empirically to have no, or minor, effects on real outcomes. Motivated by this fact, we build a model that incorporates counteracting theoretical mechanisms of dividend taxes to determine which mechanism dominates quantitatively. Consistently with the empirical findings, the quantitative model generates a small negative effect on investment and negligible positive effects on output and labor earnings.

Dividend Taxes and the Allocation of Capital: Comment

Boissel and Matray (2022) find that investment increased after 2013 in French firms facing higher dividend taxes. We identify an alteration in the code plotting the event study of the effect of this reform on investment. Using identical data and removing this alteration, we find differential pre-trends between treated and control firms. We also establish that the controls referred to as “size growth,” used in all the difference-in-difference specifications, effectively are controls for lagged investment, i.e., the main outcome variable. Removing such controls attenuates differential pre-trends but leaves no clear event study evidence of a positive effect of dividend taxation on investment. (JEL D22, G31, G35, H25, H32)

Retraction of “Dividend Taxes and the Allocation of Capital”

Retraction of “Dividend Taxes and the Allocation of Capital”