International tax arbitrage via corporate income splitting

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International tax arbitrage via corporate income splitting

Author Info

Satish Chand () (Asia Pacific School of Economics and Government, Australian National University)

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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 harmonisation of income tax rates across jurisdictions? This paper shows that the answer is in the negative. When a corporation has the choice in deciding the fraction of income that it distributes as dividends with the remainder held for future capitalisation, 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.

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Paper provided by East Asian Bureau of Economic Research in its series Microeconomics Working Papers with number 560.

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Length: 18 pages
Date of creation: Jan 2002
Date of revision:
Handle: RePEc:eab:microe:560

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Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
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Paper
- Satish Chand, 2002. "International tax abitrage via corporate income splitting," International and Development Economics Working Papers idec02-1, International and Development Economics. [Downloadable!]

Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," Journal of Business, University of Chicago Press, vol. 34, pages 411. [Downloadable!]
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, Australian National University, Economics RSPAS. [Downloadable!]
A. C. Miller, 1902. "Fiscal Reciprocity," Journal of Political Economy, University of Chicago Press, vol. 10, pages 255. [Downloadable!] (restricted)

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