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International tax arbitrage via corporate income splitting

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  • Satish Chand

Abstract

If capital for corporate finance was available from a common global pool and at zero transaction cost, then does after-tax arbitrage require harmonization of income tax rates across jurisdictions? This paper shows that the answer is in the negative. When a corporation has the choice of deciding the fraction of income that it distributes as dividends with the remainder held for future capitalization, then such choice brings about arbitrage in after-tax rates of return to investors facing a common pre-tax return but different rates of income taxes. Policy implications are drawn from this result.

Suggested Citation

  • Satish Chand, 2002. "International tax arbitrage via corporate income splitting," Quantitative Finance, Taylor & Francis Journals, vol. 2(2), pages 111-115.
    • Handle: RePEc:taf:quantf:v:2:y:2002:i:2:p:111-115
    DOI: 10.1088/1469-7688/2/2/302
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    References listed on IDEAS

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    1. Prema-chandra Athukorala & Satish Chand, 1998. "Trade Orientation and Productivity Gains from International Production: A Study of Overseas Operations of US Multinationals," Departmental Working Papers 1998-02, The Australian National University, Arndt-Corden Department of Economics.
    2. Nils H. Hakansson., 1982. "To Pay or Not to Pay Dividends," Research Program in Finance Working Papers 124, University of California at Berkeley.
    3. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    4. Hakansson, Nils H, 1982. "To Pay or Not to Pay Dividend," Journal of Finance, American Finance Association, vol. 37(2), pages 415-428, May.
    5. A. C. Miller, 1902. "Fiscal Reciprocity," Journal of Political Economy, University of Chicago Press, vol. 10, pages 255-255.
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    Cited by:

    1. Frank Strobel, 2005. "International tax arbitrage, financial parity conditions and preferential capital gains taxation," Quantitative Finance, Taylor & Francis Journals, vol. 5(2), pages 219-226.
    2. Strobel, Frank, 2012. "International tax arbitrage and residence vs. source-based capital income taxation," Research in Economics, Elsevier, vol. 66(4), pages 391-397.

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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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