Dividend Tax Research Articles

RETRACTED BY THE AUTHORS: Dividend Taxes and the Allocation of Capital

This paper investigates the 2013 threefold increase in the French dividend tax rate. Using administrative data covering the universe of firms from 2008 to 2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to invest more. Heterogeneity analyses show that firms with high demand and returns on capital responded most while no group of firms cut their investment. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes credit constraints, which can reduce capital misallocation. (JEL D22, G31, G35, H25, H32)

Does individual investors’ dividend tax influence analyst forecast? Evidence from a quasi-natural experiment in China

Taking the implementation of dividend tax reform (DTR) for individual investors as a quasi-natural experiment, this paper analyzes the effect of individual investors’ dividend tax on analyst forecast using difference-in-differences model. The results show a significant decrease in the accuracy of analysts’ forecasts after the implementation of DTR, mainly exacerbating the optimistic bias of analysts. Further analysis indicates that this effect is more pronounced for firms with poorer information quality and firms with less private information. Our study provides theoretical support and empirical evidence for regulators concerned with information asymmetry of capital market and investor protection.

Private benefits of corporate philanthropy and distortions to corporate financing and investment decisions

AbstractResearch Question/IssueThis study examines whether private benefits of control, as measured by corporate philanthropic activities, distort corporate financing and investment decisions.Research Findings/InsightsWe find that corporate giving represents a private benefit of control that distorts corporate investment and financing activity, consistent with free cash flow agency theory. Corporate giving discourages managers from pursuing external financing, especially debt issuance, to minimize outside monitoring. It creates preferences for internally financed cash acquisitions for the same reason. These distortions reduce shareholder wealth. Following both the 2003 dividend tax cut and hedge fund activism, corporate charitable contributions fall while investment rises, suggesting suboptimal investment caused by managerial private benefit extraction. Acquisition announcements of firms making large charitable contributions show negative stock market reactions that are more pronounced for acquirers with poor corporate governance.Theoretical/Academic ImplicationsOur findings suggest that due to agency problems and managerial rent extraction, corporate philanthropic activities can distort corporate financing and investment decisions and yield corporate charitable contribution allocations that personally benefit a firm's CEO at shareholder expense.Practitioner/Policy ImplicationsAs corporate philanthropy imposes a significant cost to shareholders, managers may seek shareholder approval on corporate philanthropic activities. The Securities and Exchange Commission may also require timely disclosure of corporate donations.

Macroeconomic Effects of Dividend Taxation with Investment Credit Limits

Macroeconomic Effects of Dividend Taxation with Investment Credit Limits

Article: The Fundamental Freedoms and the Taxation of Dividends Received by Non-resident Investment Funds: Some Thoughts on Non-discrimination With a Special Focus on Recent ECJ Case Law

This objective of this article is to discuss outbound cases involving investment funds focusing particularly on the issue of discrimination. The motivation to engage in this inquiry is two-fold. On the one hand, the fund taxation systems in Fidelity and Köln-Aktie Deka Funds include requirements not found in those fund taxation regimes subject to ECJ scrutiny long ago. It is of interest to analyse to what extent this can make a difference. Secondly, the opinions of AG Saugmandsgaard Øe in A SCPI and AG Kokott in Allianzgi merit a closer examination. In the case of the former, it is the AG’s unique approach to comparability that necessitates analysis. In the latter case, it is the variety of far-reaching questions raised by this complex case. EU law, comparability, ECJ, investment funds, fundamental freedoms, Allianzgi, A SCPI, Fidelity, Köln-Aktie Deka Funds.

Sharing the dividend tax credit pie: The influence of individual investors on ex-dividend day returns

Taxes create distortions in financial markets. A tax credit attached to dividend payments in Australia creates a wedge in valuations as it can be utilized only by certain investors. Individual investors, who benefit most from the credit, buy aggressively cum-dividend and sell aggressively ex-dividend, demanding liquidity from institutional investors. Stocks with higher net purchases by individual investors operating through discount brokers in the cum-dividend period have ex-day returns that are 25 bps lower. The tax distortion allows individual investors to capture the tax credit and institutional investors to increase trading profits. Individual investor trading influences ex-dividend pricing.

Dividend taxes and investment efficiency: Evidence from the 2003 U.S. personal taxation reform

We examine the effect of a large dividend tax cut on corporate investment efficiency by exploiting the 2003 personal taxation reform in the U.S. as a quasi-natural experiment. Using a difference-in-differences approach based on the probability that a firm’s marginal investor was an individual investor, we show that the 2003 dividend tax cut significantly improved the investment efficiency of U.S. listed firms. However, we find no evidence that the dividend tax cut increased the level of investment of U.S. listed firms. Further, we show that the tax cut increased investment efficiency by mitigating agency problems associated with the excessive free cash flows of overinvesting firms and by relaxing the financial constraints of underinvesting firms.

Individual investors’ dividend tax reform and corporate social responsibility

This paper examines the effect of individual investors’ dividend tax on the fulfillment of corporate social responsibility (CSR). By introducing the implementation of dividend tax reform (DTR) for individual investors, we present strong evidence that the reduction of the individual investors' dividend tax significantly reduces the fulfillment of CSR activities related to all stakeholders, except for shareholders. A plausible mechanism is that the reform encourages individual investors to increase holding periods, thereby crowding out institutional investors, which further reduces the firms’ external monitoring pressure. The effect is particularly pronounced for firms with high ownership concentration, low individual investor attention, and low executive ownership. By revealing the unintended effect of the individual investors’ DTR on the firms’ fulfillment of CSR, our study presents a clear policy to regulators concerned with CSR and investor protection.

The effect of ownership structure on corporate payout policy and performance: Evidence from Korea's exogenous dividends tax shock

For three years, from 2015 to 2017, the Korean government granted temporary tax benefits to shareholders of firms that exceeded certain thresholds to qualify as high-dividend firms. Using the temporary tax cut as an exogenous tax shock imposed on the market, I examine the impact of the tax cut on high-dividend firms' changes in dividend policy and firm performance, focusing on ownership by majority shareholders. I find that the majority shareholders are more likely to meet the requirements of high-dividend firms to enjoy temporary tax benefits when they have more stake. I also reveal that the dividends increase with the majority shareholders' level of ownership in high-dividend firms, while tax-advantaged stock repurchases decrease. Finally, I find that the majority shareholders' level of ownership in high-dividend firms has a significantly negative effect on the firms' short- and long-term performance. These results suggest that the tax reforms led to agency problems.

How does business power operate? A framework for its working mechanisms

AbstractThe global financial crisis of 2008, its following bank bailouts, and associated corporate impunity sparked a renewed interest in the concept of the structural power of business and the question of “who rules?” in capitalist societies. This new wave of scholarship mitigated some of the problems of the original, theory-driven discussions from the 1970s and 1980s. But despite significant advancements in the empirical identification of business power, we lack a unified framework for studying its working mechanisms. So-called hybrid approaches, drawing on instrumental and structural power for their analyses, display high potential for such a unified and easily applicable framework. We build on this hybrid tradition and propose a novel model that integrates instrumental and structural power analysis into a basic framework. With this, we recalibrate the often rigid division between instrumental and structural power forms and emphasize the role of perceptions as key for understanding the dynamics of business power over time. We illustrate this parsimonious framework by an analysis of the plans of the Dutch government to abolish a dividend tax in 2018 that would have benefited a number of large multinationals but collapsed before implementation.

Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

Dividend Taxes, Firm Growth, and the Allocation of Capital

Dividend Taxes, Firm Growth, and the Allocation of Capital

Dividend Taxes and Corporate Choice: Evidence from 2015 Tax Cut in South Korea

Dividend Taxes and Corporate Choice: Evidence from 2015 Tax Cut in South Korea

Use of profit: procedure for accounting display and taxation of operations

Introduction. The article analyzes the norms of current regulatory legal acts regarding the use of profit and taxation of operations caused by the accrual of dividends. The economic essence of retained earnings (uncovered loss) and the procedure for its calculation are highlighted. The directions of profit use are characterized. External and internal factors influencing the distribution of net profit are determined. The areas of profit distribution that affect the financial stability of the issuer of corporate rights are indicated. The areas of profit distribution affecting the extraction of resources from the economic turnover of the issuer of corporate rights are highlighted. The procedure for accounting display of transactions caused by the formation of profit and its use is outlined. The economic essence of dividends and their impact on the financial condition of both issuers of corporate rights and founders is revealed. The procedure for calculating the dividend advance payment from income tax in the part of taxation of dividends paid to foreign investors is highlighted. The procedure for taxation of income from the source in Ukraine for non-resident individuals is described. It is proposed to improve the analytical accounting of the use of profit. Attention is focused on the fact that in order to strengthen control over the targeted use of profit, it is advisable to display the distribution of profit in the following directions in the Equity Report: 1) for reinvestment; 2) for consumption. Goal. Elucidation of the procedure for the accounting display of the use of profit and the formation of proposals for improving the accounting of the object under study. Method (methodology). General scientific methods (analysis, synthesis, induction and deduction), empirical theoretical (formalization, hypothetical) and empirical methodical methods of research (calculation-analytical, implementation of results in practical activities, reporting display of economic activity). The results. For the purpose of reliable accounting and reporting display of operations caused by the use of profit, it is proposed to display such operations in the section of the following analytical accounts: 4431 "Profit used for reinvestment of economic activity" and 4432 "Profit used for the payment of dividends". In the Report on equity, it is advisable to display the distribution of profit in the following directions: for reinvestment; for consumption. These proposals are aimed at increasing the informativeness of the accounting and reporting data of the issuer of corporate rights.

Country Note: Abolition Of Ddt In India: A Treat For Foreign Investors?

The Indian government eliminated the much maligned dividend distribution tax (DDT) through Finance Act 2020. The abolishing of the DDT marks a return to the shareholder regime of dividend taxation (hereinafter ‘shareholder regime’). Foreign enterprises (generally multinational corporations) aiming to do business in India through subsidiaries or enterprises that already have subsidiaries in India can benefit from this change. This article analyses the tax impact of this change when an Indian subsidiary distributes its profits to its parent or holding company. Thus, the paper presents a tabular representation of taxation in the DDT regime and the shareholder regime and compares them. To present the complete scenario, the paper also analyses different profit distributing mechanisms other than dividends that are used by companies – specifically, the buyback of shares and share capital reduction. Finally, limited liability partnership (LLP) firms offer another vehicle for companies to conduct business in India. Thus, the paper also analyses the taxation aspects of an LLP distributing profits to its partner company. The return to the shareholder regime will allow non-residents to avail beneficial tax rates provided for dividend taxation in double taxation avoidance agreements (DTAAs) signed by India with other countries. Thus, the final section of this article discusses the mechanisms that are in force to prevent treaty shopping. The principal purpose test (PPT) brought in by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) (Multilateral Instrument or MLI), the threshold of beneficial owners found in most DTAAs, and India’s domestic general anti-avoidance rule (GAAR) are analysed to determine the essential requirements of these mechanisms. CFC, Individuals, BEPS, Action 3, Brazil.

Corporate tax - a new paradigm is needed! -II. A new global value-added tax is needed instead of a corporate tax

Abstract: The corporate tax system is easy to manipulate in modern economies, with high explicit and implicit costs of maintaining it. Attempts to reform it have been unsuccessful, with aggressive tax planning and tax evasion gaining ground at the international level. The source of constant conflicts between national tax administrations and companies is also the corporate tax base and tax accounting. Therefore, based on a new paradigm, I have developed a new, globally introduce, corporate value-added tax on corporate adjusted sales. Revenues from this tax would replace general government revenues lost due to the abolition of corporate tax. Based on the GDP of the member states of the European Union, I calculated the rate of the new tax for all member states. In the study, I present in detail, the mechanism of operation of the new tax, then describe the advantages of the introduction of the new tax compared to the corporate tax. Finally, I will thoroughly present how the taxation of dividends from company owners/shareholders would change if the new tax I planned was introduced and operated. This new type of taxation of dividends would, in my view, contribute more fairly to the burden-sharing. Journal of Economic Literature (JEL) codes: C 53, E 62, H 24, K 34

Studi Komparatif Aplikasi Tax Treaty Indonesia-Tiongkok Dan Indonesia-Singapura

The increasing of global investment and trading has generated a close-relationship among countries. as a sovereign nation, a country will enforce its domestic rules particulary tax law. In order to stabilize the economy and keep the fairness, most countries agree to establish a tax treaty. This research investigates how the impact of tax treaty conducted by Indonesia. In addition, it compares the tax treaty between Indonesia-Chinese and Indonesia-Singapore. This research applies qualitative research to obtain a deep understanding. There are several important findings. First, in general tax treaty can promote a fair taxing for both treaty partners. Second, tax treaty between Indonesia-Singapore is more beneficial compares to Indonesia-Chinese from the perspective of dividend tax rate. Third, the research propose that the Government of Indonesia re-negotiate several articles particularly the tax rate.

Does strengthening large shareholders’ cash flow rights reduce their expropriation motivation? Evidence from China’s dividend tax reforms

According to classic corporate governance theory, strengthening large shareholders’ cash flow rights without changing their control rights should reduce expropriation incentives by better aligning their interests with those of minority shareholders. However, due to the weaker investor protections and low dividend payouts of listed firms in China, large shareholders typically extract private benefits instead of seeking shared benefits through dividends. They therefore care more about control rights than cash flow rights. An empirical study using the exogenous changes of two rounds of dividend tax reductions reveals that strengthening the largest shareholders’ cash flow rights leaves their expropriation activities unchanged and firm value does not increase. However, when other shareholders supervise the largest shareholder, expropriation activities ease significantly.

Taxation and the external wealth of nations: Evidence from bilateral portfolio holdings

This paper examines the impact of capital income taxation on the composition of foreign portfolio investment and on long-term external wealth. Using data on bilateral portfolio positions for a sample of 37 countries over the period 2001–2017, we find that capital gains and dividend taxation reduce the share of equities in foreign investments, while interest taxation increases this share. To examine the potential effects of capital income tax reform on long-term external wealth, we simulate tax reforms in which each country replaces its actual capital income tax rates by the average tax rates in the sample. We find that the external wealth effects of such reforms can be very substantial, with estimates ranging from +8.5% for Japan to −10% for New Zealand.

Tax In History: Italy’S 1970s Tax Reform And Its Waning Legacy

Italy, fifty years ago, passed a bunch of bills which overhauled its tax system. Thereafter, the old taxes, which had survived for about a century, were replaced by a set of ‘modern’ ones. The process was prompted by a law of delegation, which laid down the cornerstones of the tax reform to come: its principles – such as personality, progressivity, differentiation, simplification, and so on – were meant to steer the Country towards a new era of social justice and economic development. Things, regrettably, went otherwise. With the important exception of Value Added Tax (VAT), whose implementation has always been dependent on European law, the guidelines of the 1970s Tax Reform were superseded in various ways, as summarized below. According to the law of delegation, the Italian tax jurisdiction had to stick to the personal progressive income tax (PIT): this notwithstanding, it soon reverted to the old schedular approach. In regard of corporate profits, the many attempts to deal with double taxation have been eventually dismissed. The idea of taxing income differently, whether earned or unearned, has been abandoned, or rather subverted, to the detriment of labour income. Tax returns of small businesses and self-employed are hardly likely to be controlled by the tax authority. Italy, there are few doubts about that, seems to be in desperate need of a new tax reform. Italy’s tax reform, income taxation, principle of differentiation, corporate tax, double taxation of dividends, taxation of business profits, indirect taxes.