tag:blogger.com,1999:blog-9208928.post2928573555636847478..comments2024-03-29T03:16:05.261-04:00Comments on Start Making Sense: Corporate integration via dividend deductibilityDaniel Shavirohttp://www.blogger.com/profile/14710628584922961682noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-9208928.post-84233038795270897942011-11-21T14:54:16.175-05:002011-11-21T14:54:16.175-05:00Dear Professor Shaviro,
I'm currently finishi...Dear Professor Shaviro,<br /><br />I'm currently finishing my thesis (in Perú), researching on fiscal neutrality systems between debt and equity corporate financing. <br /><br />In that perspective, i'm searching for tax systems which currently have the dividend deduction system at a corporate income tax level. Not notional interest (Belgian or Brazilian), imputation, exemption or exclusion systems, but deduction of dividends paid by company to shareholders. <br /><br />According to the OECD from 1969 to 1993 Sweden permitted such deduction, and also Norway had the same system until 1991.<br /><br />As a partial meassure, Australia (for Co-operatives companys), Japan (for particular corporations) and even US (for some investment vehicles as REITs) have implemented this system.<br /><br />In a global compared perspective, i found two scenarys:<br /><br />i) the beneficiary company of dividend income (distributed by another company) can deduct such dividends from the corporate tax basis?. Or; <br /><br />ii) the company wich distributed and paid dividends to shareholders can deduct such dividends from the corporate tax basis? <br /><br />The system wich i'm searching for, is the second scenary (ii). <br /><br />In the first scenary (i), even when the term used by some jurisdictions is "deduction", is in fact an exemption system (excluding dividends from corporate tax basis because they are exempted) or even partial inclusion system (when law impose cuantitative limits for such exclusion). <br /><br />In escenary (i), the principal fiscal policy behind corporate tax system is to relief the potential triple taxation in shareholder head. <br /><br />in escnary (ii), the principal fiscal policy behind the deduction is to achieve tax simmetry in dividends taxation, giving a fiscal neutrality treatment in both debt and equtity corporate finance. <br /><br />Do you know some country wich this system (ii) as a general corporate tax rule?, or other particular cases abroad?<br /><br />Best regards,<br /><br />Thanks.<br /><br />Jesús A. Ramos Angeels <br />jaramos@kpmg.comJesús A. Ramos Angeleshttps://www.blogger.com/profile/12288847644076571804noreply@blogger.comtag:blogger.com,1999:blog-9208928.post-55003592006018019912011-10-05T12:25:44.946-04:002011-10-05T12:25:44.946-04:00Thanks, Elijah. Very interesting and sounds persu...Thanks, Elijah. Very interesting and sounds persuasive.Daniel Shavirohttps://www.blogger.com/profile/14710628584922961682noreply@blogger.comtag:blogger.com,1999:blog-9208928.post-70688184605887353182011-10-05T09:08:26.105-04:002011-10-05T09:08:26.105-04:00Esoteric indeed.
"Presumably the financial a...Esoteric indeed.<br /><br />"<i>Presumably the financial accounting rules would NOT be revised to allow dividend deductions against financial accounting income...</i>. I think it is safe to say the financial accounting rules <b>definitely</b> would not be revised with respect to the computation of pre-tax income. However, I can envision guidance being issued on the tax accounting treatment of a dividend deduction, though it seems to me this could be handled readily enough under the current financial accounting framework absent any additional guidance.<br /><br />As you suggest (directionally at least), corporations would presumably book a deferred tax asset for undistributed divideds, much in the same manner as they currently book a deferred tax liability for the (non-permanently reinvested) unrepatriated earnings of their foreign subsidiaries. In this manner, they would "ignore" the actual timing of the (tax) deduction and the tax rate (on U.S. earnings) would move towards zero.<br /><br />I say "move towards" because capital needs will prevent corporations from ever truly distributing <i>everything</i> prior to liquidation, which itself may be too remote a possibility for the corporation to consider for financial accounting purposes. Rather, corporation would undoubtedly get into the usual arguments (with their auditors) about how much of the the deferred tax asset could really be realized, and whether some amount of offsetting valuation allowance would be appropriate. This would ultimately be reflected in the (book) tax rate.<br /><br />The more interesting question, I think, is whether any of this would influence managers to pay dividends. My initial thought is that it would not. Managers would, theoretically at least, not be able to influence the book tax rate (year to year) by paying dividends in year 1 versus year 2 (or 3, or 4, etc.).Anonymoushttps://www.blogger.com/profile/06465557640363780260noreply@blogger.com