Dividend Tax Research Articles

Optimized profit repatriation in multinational enterprises through cross-border change of legal form and international tax management

This article shows for the first time that the cross-border change of legal form can be used for tax-optimized profit repatriation. By means of a cross-border change of legal form of the foreign EU corporation prior to distribution into another foreign EU corporation with subsequent dividend distribution after the cross-border change of legal form has taken place, the taxation of dividends with withholding tax can be avoided. This study develops and discusses this strategy for the first time and transfers it specifically to U.S. shareholders of European corporations. Moreover, this strategy is relevant in general for all shareholders of European corporations, irrespective of their residence, to get tax-optimized profit repatriation of dividends (retained earnings) and to avoid the problem of treaty shopping, which has been significantly strengthened by the introduction of the ATAD/BEPS principal purpose test (PPT) in all EU Member States. The study extends the state of knowledge in the area of international taxation, international mergers, finance and strategy.

FINANCIAL MARKET FRICTIONS AND TRADE IN THE NIGERIAN BOURSE

Using data from 1982 to 2021, this study looked at how financial market frictions affected trade on the Nigerian bourse. For the study, a longitudinal research approach was chosen. The study’s specified model was estimated using the Error Correction Mechanism (ECM) and multivariate ordinary least square (OLS) techniques. Findings revealed that only the capital gains tax rate hindered trading activities in the Nigerian stock market in the long run during the period studied. However, in the short run, transaction costs, capital gain tax rates, and dividend tax rates all have a negative impact on trading activity on the Nigerian stock exchange, but they fail the significant test. As a result, the study concludes that the capital gains tax rate is the only financial market friction that impedes trade on the Nigerian stock exchange during the study period. To mitigate the negative impact on trading activity on the Nigerian bourse, the government should ensure that capital gains are taxed at a reasonable rate. Accordingly, the present capital gains tax rate of 10% should be cut to 5%.

Do Managers Do Good with Other People’s Money?

Abstract There is mixed evidence on whether the marginal dollar spent on corporate social responsibility is due to agency problems. We propose an approach by modeling how the 2003 dividend tax cut, which increased after-tax insider ownership and better aligned managerial and shareholder interests, affected the marginal dollar spent on firm responsibility. We confirm key predictions of our agency model: following the tax cut, moderate insider-ownership firms experience larger declines in their responsibility ratings and increases in their valuations relative to other firms. We also confirm another implication regarding managerial misalignment using a regression-discontinuity design of close votes on shareholder-governance proposals. (JEL G30, G31, G35) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Tax clientele and share repurchase execution

This study hypothesizes that low-tax clientele firms are reluctant to engage in share repurchases because their shareholders’ dividend tax penalty is less than the expropriation of strategic trading in share repurchases. As a result, firms formed by low-tax clientele execute share repurchases in a cost minimization strategy when they consider the tax status of most of their shareholders. Using novel data from Taiwan, this research finds that, compared to high-tax clientele firms, low-tax clientele firms tend to use market timing skills to repurchase stocks and get a larger price discount in the repurchase execution. The findings enrich the dividend tax penalty and market timing literature and offer practical implications for shareholder activism.

Dividend and corporate income taxation with present-biased consumers

Debates on the double taxation of dividends and corporate income have been long-standing. If double taxation were to be avoided, which type of tax policy would be more ideal? Conventional corporate theory based on microeconomic approaches does not yield a definitive answer, as either policy would distort firm investment and decrease firm value. Distinct from previous models, this paper addresses the double taxation issue in a macroeconomic context under a Laibson-type hyperbolic discounting model. In particular, this paper shows that in the hyperbolic economy, dividend taxes can improve consumer welfare, even though they decrease firm value. On the other hand, corporate income taxes negatively impact both consumers and firms. We also extend this result in an infinite-period steady-state model and show quantitative implications.

Intertemporal equilibrium with physical capital and financial asset: Role of dividend taxation

The paper introduces dividend taxation and productive government spending in an infinite-horizon general equilibrium model with heterogeneous agents and financial market imperfections. We point out that imposing a dividend tax and using the revenue from this tax to finance productive government spending may prevent economic recession and promote economic growth. We also investigate the issue of optimal dividend taxation and the role of dividend taxation on the asset price bubble.

Dividend taxes and corporate choice: Evidence from 2015 tax cut in South Korea

In this paper, we test the old view and the new view of dividend taxation using a new set of evidence from a unique event in South Korea. Using a multiple regression discontinuity (MRD) setting from the South Korean 2015 tax reform, we find that investors react positively to the news of an anticipated dividend tax cut. The positive market reaction is more pronounced for firms with higher investment intensity, more investment opportunities, and less financial constraint. We also find that firms with more investment opportunities but less capital expenditures in the past are more likely to opt for the dividend tax cut. Using a difference-in-differences analysis, we document that corporate investment increases for firms that received the tax cut, along with a decrease in the implied cost of equity. Our findings are consistent with the notion that firms make a rational choice of dividend taxes based on their needs for financing and investment.

Individual investors’ dividend tax reform and stock price crash risk

This paper examines the effect of individual investors’ dividend tax on stock price crash risk. 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 reduces the stock price crash risk. Mechanism analysis shows that DTR reduces the stock price crash risk by enhancing investor supervision and reducing the stock selling behavior of executives. Furthermore, DTR also reduce the stock price synchronicity. By revealing the effect of the individual investors’ DTR on stock price crash risk, our study presents a clear policy to regulators concerned with high-quality development of the capital market.

Article: The Distorting Effects of Imputation Systems on Tax Competition in the EU

The design of corporate income tax systems and thus the taxation of (cross-border) dividends are encompassed within the sovereignty of the Member States of the European Union (EU). However, these rules are restricted by the EU regulatory framework and the case law of the European Court of Justice (ECJ) which prohibit discrimination of foreign- against domestic-sourced dividends. Therefore, five EU Member States abolished their discriminatory imputation systems in favour of shareholder relief systems between 1999 and 2019 which had not only legal but also economic implications. In this simulation study, the authors assess how and to what extent the abolishment of discriminatory imputation systems in the EU Member States affected a country’s tax location attractiveness for capital investments and tax competition. The analysis is based on the cost of capital (CoC) and effective average tax rates (EATR) using the Devereux/Griffith methodology. Overall, under the discriminatory imputation systems, the authors find lower CoC and EATR for investments located in the shareholder’s residence country compared to foreign investment alternatives. The advantageousness is, on average, reversed after the switch to the shareholder relief systems and places additional tax competition pressure on the affected Member States. Corporate tax systems, Dividend taxation, Devereux/Griffith methodology, European Court of Justice, Internal market, Effective tax rates, Cost of capital JEL classification: H21, H24, H25, K34

Influence of dividend tax policy tied to investment horizon on stock price stability: Evidence from the 2015 dividend tax reform in China

AbstractWe examine how the dividend tax cut policy tied to the investment horizon enforced on September 8, 2015, influences stock price stability in China's A‐share market. As the new dividend tax policy waives the tax on cash dividends for investors holding a stock for more than a year, it encourages long‐term investment behavior. From 2013 to 2017, we find that stock turnover, return volatility, and turnover volatility decrease after the policy enforcement, especially for stocks with high dividend yields. This result shows that dividend tax reforms increase investors' stock investment horizons and help stabilize the market. However, our findings demonstrate that stock crash risk increases after policy enforcement. Further analysis shows that earnings management through real activities manipulation for stocks with a higher dividend yield contributes to an increase in stock crash risk. Therefore, one externality of the dividend tax cut policy tied to the investment horizon is that top managers of firms with a higher dividend yield may take advantage of investors' passive longer‐term investment behavior and engage in more earnings management. This result suggests that regulatory agencies should pay attention to top managers' earnings management behavior after enacting policies that encourage long‐term investment.

Dividend taxation and the ownership structure of private firms

This paper examines the effect of dividend taxation on the ownership structure of private firms. I exploit a German dividend tax increase that only affects corporate shareholders owning a minority stake. Using data on private German firms and their shareholders, I find that corporate shareholders reduce their minority stakes in firms after the dividend tax reform. This result is in line with the notion that, because minority shareholders do not have sufficient decision-making power to influence the payout policy, they can only react to a dividend tax increase by selling their shares. This effect is larger when the affected minority shareholders face high dividend tax costs. However, I find a smaller effect when the benefits of the minority stakes are highly relevant for the firm and the affected shareholders, suggesting that non-tax factors mute the response to dividend taxes. In addition, I find that the largest shareholder of the firm buys the minority stake, resulting in greater ownership concentration. These findings extend the prior literature that finds no effect of dividend taxes on the ownership structure of private firms.

Will Brazil Finally Tax Dividend Income?

In 1995, Brazil began allowing corporations to deduct distributed earnings and profits from income while also exempting dividends from taxation at the shareholder level. Over the past three decades, elected officials from across the political spectrum have sought without success to change that system, which critics claim unfairly rewards taxpayers at the top of the income pyramid. Paulo Costa explains why, facing economic headwinds and government coffers depleted by the COVID-19 pandemic, the new government of President Lula might finally succeed.

The Accounting and Fiscal Regime of Dividends in 2023

The Government Ordinance No. 16/2022 has some novelties with regard to the tax treatment of dividends. Thus, starting with the 1st of January 2023, the dividend tax rate increases from 5% to 8% for the dividends paid to legal persons and to resident/non-resident natural persons, as well as to privately administered pension funds and to the optional pension funds. As an element of novelty, the Government Ordinance No. 16/2022 brings a series of clarifications regarding the conditions that must be fulfilled in view of applying the exemption of dividend payments made by a Romanian legal person to another one, with regard to the form of organisation and the application of the profit tax or of another tax which replaces it, without the possibility of an option or exemption. Besides the increase of the tax rate, the Government Ordinance No. 16/2022 also brings changes with regard to the health contribution rules for the dividend incomes. Thus, starting with the incomes corresponding to 2023, the payment obligation of the health contribution for the dividends collected by the natural persons appears from the six minimum salaries ceiling, compared to the 12 salaries ceiling in the previous year. While the dividend tax is applied according to the year of their distribution, the health insurance contribution is applied by taking into account their actual collection date. If the dividends are distributed during 2022, but are paid in 2023, the taxation rate is kept at 5%, but the health insurance contribution falls within the rules from the year of their collection. The distribution of dividends can be made annually, after the approval of the annual financial statements corresponding to the ended financial year, or quarterly, throughout the year, after the approval of the interim financial statements. Law No. 370/2022 clarifies the fact that, in case the company decided to distribute dividends based on the interim financial statements prepared during 2022, the 5% taxation rate is kept, without recalculating the tax on the respective dividends after their regularisation based on the annual financial statements corresponding to the financial year 2022, approved according to the legal regulations.

KEBIJAKAN PENGECUALIAN PAJAK DIVIDEN: KABAR BAIK ATAU BURUK BAGI INVESTOR

The issuance of Omnibus Law Policy is predicted to be an effective policy in simplifying regulations, especially in the field of taxation. This study aims to find out in depth the perceptions of various parties regarding the implementation of PMK No. 18 regarding Exceptions from the Imposition of Income Tax on Dividends. Researchers try to map the problem from various perspectives, including investors, securities companies, tax consultants, tax officials and academics. The research was conducted using a qualitative approach with structured interview techniques. The results show that this Exemption of Dividend Tax policy is beneficial for corporate taxpayers, while for personal taxpayers it still tends to be detrimental because the administration is too complicated. So that policy makers need to review the implementation of Minister of Finance Regulation. In addition, the results of the study also show that although in the short term this policy has the potential to reduce Government revenues from the tax sector, in the long term this policy has the potential to accelerate national economic growth, especially after the Covid-19 pandemic. This research can be a reference for the government and academics in implementing policies in the field of taxation.

ОБЛІК ТА ОПОДАТКУВАННЯ В АКЦІОНЕРНИХ ТОВАРИСТВАХ В АСПЕКТІ ЗАКОНОДАВЧИХ ЗМІН

In this article, we discuss the methods, problems, and legal foundations of accounting and taxation of joint-stock companies in Ukraine. The law "On joint-stock companies" was passed in Ukraine in 2023, which caused certain changes in accounting in them. Also in this article, we explored the genesis of the legal foundations and their effect on the accounting in joint-stock companies, as well as such specific aspects as the accounting of the equity capital, the accounting and taxation of the dividends, and the financial reporting of stock profits. A comparative analysis of the legal foundations of joint-stock companies and accounting in them in Ukraine and foreign countries led to the conclusion that the main differences are: only shares with nominal value can be issued in Ukraine, dividends must be paid with money, dividends can't be reinvested into the equity capital. We offer examples of the accounting of establishment of the equity capital, increasing the equity capital through the issuance of extra shares, increasing the nominal value of shares and repurchasing of convertible bonds, as well as reduction of the equity capital through share cancellation or decreasing their nominal value, repurchasing and reselling shares at various prices, conversion of the preferred shares into common shares. We also demonstrated the features of the taxation and accounting of dividends for individuals and legal entities, as well as the calculation, accounting, and financial reporting of share profitability while showing the effects of the dilution of the common shares. In this article, particular changes to the regulatory documents of joint-stock companies are offered to put them in compliance with the recent changes in the law. General scientific methods such as dialectic, systemic, analysis and synthesis, induction and deduction, comparative method, as well as double-entry bookkeeping, which is specific to accounting, were used in this article.

Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

Dividend Taxation and Firm Performance with Heterogeneous Payout Responses

A synthesized distribution model: Asymmetric information, agency problem, and intertemporal optimization

A firm’s policy of distribution over current and future time periods influences the capital structure of the firm and its profitability. Managers decide on the amount of effort input in such a context of financial structure to maximize their utility. Nevertheless, shareholders’ preferred distribution of income is determined by the goal of corporate value maximization. The study aims to reach an optimal level of income distribution and reinvestment over current and future periods in which both the manager’s utility and shareholders’ corporate value have been maximized. The study adopts Lagrange’s multipliers method and the discounted cash flow valuation model of corporate value maximization. By processing a method of mathematical deduction and optimization, the study aims to reach an optimal equilibrium level of the dividend distribution model and explore key factors in the model for the determination of the distribution of income. As a result, the study concluded an optimal dividend distribution model, in which six factors jointly determine a theoretical equilibrium of optimization. These factors consist of the capital structure of the firm, the tax shield from debt financing, the growth rate of the dividend, dividend tax, the investment strategy of the principal, and the cost of capital.

The Different Dividend Signaling Effect under Tax Deduction around Ex-Right Day: Evidence from Taiwan Stock Exchange

Dividend tax policy is one of the important tools of government taxation. Observing the dividend tax policy and the behavior of stock prices around ex-rights will not only shed light on investment strategies, but also give us a clearer understanding of the microstructure of the capital market. Taiwan went through dividend tax policy and National Health Insurance (NHI) supplementary premium changes from 2014 to 2016. Therefore, this paper adopts the event study method to conduct empirical research on this major event period. The research conclusion points out: (1) During the research period, the company studied had a positive cumulative abnormal return before and on the ex-right day, and there was a negative cumulative abnormal return after the ex-right day. (2) When the tax reduction effect is more favorable to investors, there will be only a positive relationship with positive abnormal returns. (3) There is no statistical significance between the dividend tax reform policy and the negative abnormal return after ex-rights. The empirical results of this paper can help to better understand the pricing process of stocks by market microstructure systems such as dividend tax policies and help build a more stable stock market transaction structure. On the other hand, investors and companies can also gain their own investment or dividend policy inspiration from this research.

New Trend of Italian Tax Courts to Overrule IRAP Taxation of Dividends Received by Banks, Insurance Companies and Financial Holding Companies

In this note, the authors discuss two Italian cases wherein the lower courts, in response to a Constitutional Court decision finding that the EU Parent-Subsidiary Directive (2011/96) tax exemption for intra-group dividends extends to Italian regional tax on productive activities (IRAP), reversed IRAP taxation of dividends received by banks, insurance companies and financial holding companies.

재건축사업에서 조합원에 대한 공급의 재화공급 해당성에 관한 연구

After completion of the reconstruction of a residential condominium (hereafter referred to as “Apartment or Real Estate”)(Usually, condominiums are called apartments in Korea) the association members’ apartments will be constructed together with the apartments to be sold to the general public upon approval of construction permit from the local government.
 After completion of construction, each member of an association will proceed to register under his or her own name at the government registry office and general public sales units will be registered under the name of the association of reconstruction.
 For construction permit aspect, the association of reconstruction(hereafter referred to as “association”) builds the apartments and provides to the member of reconstruction association(hereafter referred to as “member”), but another of view i.e. association members, this can be construed as a transfer of existing apartment (old house) to the association and receive a new house(an exchange of an old house for a newly built house) For preservation registration aspect, the association provides its name to use when they build apartments for the members of the association. But from the viewpoint of association members, they built their own apartments by themselves.
 At the real estate reconstruction(Reconstruction members’ portion+general public sales portion), ① acquisition tax, value added tax and capital gain tax will be imposed as if members built their own apartment.
 From the viewpoint of preservative registration of real estate, the obligator of acquisition tax is the association member, accordingly, value-added-tax is not imposed on the association member. Also this real estate is not considered a transfer of ownership. Accordingly there is no capital gain tax because the newly built apartment considered the same as existing apartment.
 ② An association tax will be imposed as if the member of reconstruction invests investment-in-kind by the existing real estate and buys a newly constructed apartment from the association(exchanging the existing old apartment and receiving newly built apartment). Accordingly the association will appraise the real estate property based on investment-in-kind and determine the value of land when the association sells a newly built apartment.(An association shall be taxed as a corporation entity) This existing real estate appraisal value is very important because the association tax (corporate tax) and dividend tax to the member of association will be determined by this appraisal value as tax basis for the gain on sale on the general public sale portion of real estate.
 This kind of two different aspect generate a few issues of taxation on acquisition tax, value added tax, and capital gain tax etc.
 This thesis presents a view of dual status position right on the association.
 The association is the original acquirer of the apartments sold to the general public but the original acquirer is the association member for the member portion of real estate, and the role of association is permitting to use the association’s name to build the new apartment.
 Given the dual status position right, the association can claim both positions: first as the supplier to the general public sale of newly constructed apart- ments, and second as the joint purchaser of real estate for the association members.
 This thesis reviews issues and dual status position right in connection with reconstruction projects under the current tax law and suggests an amendment for the Restriction of Special Taxation Act, Corporate Tax Act, and Value-added-Tax Act.
 If tax laws apply the following dual status position thesis, the grounded jurisprudence theory of acquisition tax, value-added tax and capital gain tax (original acquisition value of apartment for the member portion) will apply to the association tax. That means the theory of tax law will be consistent with the theory of that the member built