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Classical Corporation Tax as a Global Means of Tax Harmonization

  • Seppo Kari
  • Jouko Ylä-Liedenpohja

Classical corporation tax entails double taxation of corporate income. The alternative practice of imputing corporation tax to the domestic recipients of dividends is shown, in the case of a company with international owners, to effectively convert the imputation system back to a classical corporation tax. It also requires complex rules for exempting flow-through dividends from equalization tax to avoid the cumulation of corporation tax internationally. In contrast, classical corporation tax maintains its simplicity and can be designed so as to be neutral in respect of the financing and dividend decisions of multinationals, by adopting double taxation of interest income. Broad tax bases, flat-rate taxes on personal income from capital, and low statutory tax rates are advocated as general policy.

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Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 266.

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Date of creation: 19 Feb 2002
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Handle: RePEc:fer:dpaper:266
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  1. Robin Boadway & Neil Bruce, 1988. "Problems with Integrating Corporate and Personal Income Taxes in an Open Economy," Working Papers 735, Queen's University, Department of Economics.
  2. King, Mervyn A, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 21-35, January.
  3. Sijbren Cnossen, 1996. "Company Taxes in the European Union: Criteria and Options for Reform," Fiscal Studies, Institute for Fiscal Studies, vol. 17(4), pages 67-97, November.
  4. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-40, September.
  5. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
  6. Hartman, David G., 1985. "Tax policy and foreign direct investment," Journal of Public Economics, Elsevier, vol. 26(1), pages 107-121, February.
  7. Clemens Fuest & Bernd Huber, 2000. "The Optimal Taxation of Dividends in a Small Open Economy," CESifo Working Paper Series 348, CESifo Group Munich.
  8. Sinn, Hans-Werner, 1984. "Die Bedeutung des Accelerated Cost Recovery System fur den internationalen Kapitalverkehr. (The Significance of the Accelerated Cost Recovery System for International Capital Movements. With English s," Kyklos, Wiley Blackwell, vol. 37(4), pages 542-76.
  9. Sorjonen, Pasi, . "Essays on Dividends and Taxes," ETLA A, The Research Institute of the Finnish Economy, number 30.
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