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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. Hakansson, Nils H, 1982. "To Pay or Not to Pay Dividend," Journal of Finance, American Finance Association, vol. 37(2), pages 415-428, May.
    3. Nils H. Hakansson., 1982. "To Pay or Not to Pay Dividends," Research Program in Finance Working Papers 124, University of California at Berkeley.
    4. 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.
    5. A. C. Miller, 1902. "Fiscal Reciprocity," Journal of Political Economy, University of Chicago Press, vol. 10(2), 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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