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International tax abitrage via corporate income splitting

  • Satish Chand

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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File URL: https://crawford.anu.edu.au/degrees/idec/working_papers/IDEC02-1.pdf
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Paper provided by International and Development Economics in its series International and Development Economics Working Papers with number idec02-1.

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Length: 16 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:idc:wpaper:idec02-1
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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. A. C. Miller, 1902. "Fiscal Reciprocity," Journal of Political Economy, University of Chicago Press, vol. 10, pages 255.
  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.
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