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Tax, Corporate Behaviour and the Foreign Income Dividend Scheme

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  • Daniella Acker
  • David J. Ashton
  • Sue Green

Abstract

A model is derived which considers the interactions of corporation tax, advance corporation tax (ACT) and capital gains tax and their impact on UK corporate behaviour. It is shown that the recent changes to the ACT system, in the form of the Foreign Income Dividend (FID) scheme, will increase the gearing ratios of those firms affected by the changes. Debt will become more attractive, since it no longer increases irrecoverable ACT by reducing taxable profits. Furthermore, retention rates will fall, since retentions no longer serve as an ACT shield.

Suggested Citation

  • Daniella Acker & David J. Ashton & Sue Green, 1997. "Tax, Corporate Behaviour and the Foreign Income Dividend Scheme," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(1), pages 125-143, January.
    • Handle: RePEc:bla:jbfnac:v:24:y:1997:i:1:p:125-143
    DOI: 10.1111/1468-5957.00098
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    Cited by:

    1. Margaret Lamb & Andrew Lymer, 1999. "Taxation research in an accounting context: future prospects and interdisciplinary perspectives," European Accounting Review, Taylor & Francis Journals, vol. 8(4), pages 749-776.
    2. Dennis Oswald & Steven Young, 2008. "Tax‐efficient irregular payout methods: The case of B share schemes and capital repayments via a court‐approved scheme of arrangement," Accounting and Business Research, Taylor & Francis Journals, vol. 38(1), pages 49-70.

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