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Dividend tax
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{{short description|Tax levied on stock earnings}}{{Taxation}}A dividend tax is a tax imposed by a jurisdiction on dividends paid by a corporation to its shareholders (stockholders). The primary tax liability is that of the shareholder, though a tax obligation may also be imposed on the corporation in the form of a withholding tax. In some cases the withholding tax may be the extent of the tax liability in relation to the dividend. A dividend tax is in addition to any tax imposed directly on the corporation on its profits. Some jurisdictions do not tax dividends.To avoid a dividend tax being levied, a corporation may distribute surplus funds to shareholders by way of a share buy-back. These, however, are normally treated as capital gains, but may offer tax benefits when the tax rate on capital gains is lower than the tax rate on dividends. Another potential strategy is for a corporation not to distribute surplus funds to shareholders, who benefit from an increase in the value of their shareholding. These may also be subject to capital gain rules. Some private companies may transfer funds to controlling shareholders by way of loans, whether interest-bearing or not, instead of by way of a formal dividend, but many jurisdictions have rules that tax the practice as a dividend for tax purposes, called a “deemed dividend”.Australian Taxation Office, Deemed dividends from private companies- the content below is remote from Wikipedia
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History
{{Expand section|date=June 2008}}In the beginning of income tax history, dividends paid to shareholders were exempt from taxation, as such tax was considered a form or double taxation on money earned by companies and subject to corporate tax. Currently, in most jurisdictions, dividends from corporations are treated as a type of income and taxed accordingly at the individual level. Many jurisdictions have adopted special treatment of dividends, imposing a separate rate on dividends to wage income or capital gains.Here is a brief history of dividend taxation:- 17th century: The first dividend taxes were imposed in the 17th century in the Netherlands and England.
- 19th century: Dividend taxes became more common in the 19th century, as more countries adopted income taxes.
- United States: Dividend taxes were first imposed in the United States in 1913, with the passage of the 16th Amendment to the U.S. Constitution.
- 1936-1939: During the Great Depression, dividends were taxed at an individual’s income tax rate.
- 1954: The Tax Reform Act of 1954 created a separate rate for dividends, which was lower than the individual income tax rate.
- 1981: The Economic Recovery Tax Act of 1981 further reduced the tax rate on dividends.
- 2003: The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the tax rate on dividends to 15% for most investors.
- 2013: The American Taxpayer Relief Act of 2012 (ATRA) increased the tax rate on dividends to 20% for taxpayers in the top income tax bracket.
- United Kingdom: Dividends in the UK are taxed at a rate of 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers. There is also a dividend allowance of £2,000 per year, which means that dividends up to £2,000 are tax-free.
- Canada: Dividends in Canada are taxed at a rate of 50% for non-residents, and 15% for residents. There is also a dividend tax credit that can be used to reduce the amount of tax that is owed on dividends.
- Australia: Dividends in Australia are taxed at a rate of 30% for non-residents, and 15% for residents. There is also a dividend imputation system that allows shareholders to claim a credit for the taxes that the company has already paid on its profits.
- Japan: Dividends in Japan are taxed at a rate of 20% for non-residents, and 15% for residents. There is also a dividend exemption system that allows shareholders to exempt dividends from tax if they meet certain conditions.
- Germany: Dividends in Germany are taxed at a rate of 25% for non-residents, and 26.375% for residents. There is also a dividend tax credit that can be used to reduce the amount of tax that is owed on dividends.
Collection
In many jurisdictions, companies are subject to withhold obligations of a prescribed rate, paying this to the national revenue authorities and paying to shareholders only the balance of the dividend.Debate
Taxation of dividends is controversial, based on the issues of double taxation. Depending on the jurisdiction, dividends may be treated as “unearned income” (like interest and collected rents) and thus liable for income tax.Arguments in favor
A corporation is a legal entity separate from its shareholders with a “life” of its own. As a separate entity, a corporation has the right to use public goods as an individual does, and is therefore obligated to help pay for the public goods through taxes.Double Taxation of Dividends: Is the Question Resolved? By Novella Clevenger and Ken Pfannenstiel {{webarchive |url=https://web.archive.org/web/20110514214046www.newaccountantusa.com/newsFeat/wealthManagement/TaxPaperDividends.pdf |date=May 14, 2011 }} published in New Accountant magazine.Professor Confidence W. Amadi of West Georgia University has argued:{{Blockquote|The greatest advantage of the corporate form of business organization is the limited liability protection accorded its owners. Taxation of corporate income is the price of that protection. This price must be worth the benefits since, according to the Internal Revenue Service (1996), corporations account for less than 20 percent of all U.S. business firms, but about 90 percent of U.S. business revenues and approximately 70 percent of U.S. business profits. The benefits of limited liability independent of those enjoyed by shareholders, the flexibility of change in ownership, and the immense ability to raise capital are all derived from the legal entity status accorded corporations by the law. This equal status requires that corporations pay income taxes.Double Taxation of Dividends: A Clarification by Confidence W. Amadi, West Georgia University}}Once it is established that a corporation is, for all important purposes, a separate legal entity, the issue becomes how transfers from one legal entity (corporations) to another legal entity (shareholders) should be taxed, not whether the money should be taxed. It can be argued that it is unfair and economically unproductive, to tax income generated through active work at a higher rate than income generated through less active means.A 2022 study in the American Economic Review found that a substantial increase in dividend tax rates in France led to reduced dividend payments by firms and greater re-investment of profits back into the firms. The study also found that the dividend taxes did not contribute to a misallocation of capital, but may instead have reduced a capital misallocation.JOURNAL, Boissel, Charles, Matray, Adrien, 2022, Dividend Taxes and the Allocation of Capital,www.aeaweb.org/articles?id=10.1257/aer.20210369, American Economic Review, en, 112, 9, 2884â2920, 10.1257/aer.20210369, 0002-8282,Arguments against
Critics, such as the Cato Institute, argue that a dividend tax is an unfair “double taxation”.{{efn|US economists use the term “double taxation” in reference to the tax on dividends due to the fact that dividend income is paid out of corporate profits and represent a portion of the profit stream owned by shareholders. Since corporate profits are taxed first at the corporate tax rate, they are taxed again when paid out as dividends (or capital gains, which are a derivative of corporate profits). Note that in international usage, this term means the practice of taxing the same income in two different national jurisdictions.}} Cato’s position is:{{Blockquote|First, high dividend taxes add to the income tax code’s general bias against savings and investment. Second, high dividend taxes cause corporations to rely too much on debt rather than equity financing. Highly indebted firms are more vulnerable to bankruptcy in economic downturns. Third, high dividend taxes reduce the incentive to pay out dividends in favor of retained earnings. That may cause corporate executives to invest in wasteful or unprofitable projects.WEB,www.cato.org/research/articles/edwards-030108.html, Dividend Tax Relief: Long Overdue, 2004-02-05, dead,www.cato.org/research/articles/edwards-030108.html," title="web.archive.org/web/20040204191706www.cato.org/research/articles/edwards-030108.html,">web.archive.org/web/20040204191706www.cato.org/research/articles/edwards-030108.html, 2004-02-04, The Cato Institute}}Besides discussed above issues of whether taxing dividends is right and fair, a major issue is tax-induced distortions of economic incentives. For instance, quoting from:Statement by the Members of the President’s Advisory Panel on Federal Tax Reformgovinfo.library.unt.edu/taxreformpanel/04132005.pdf “Efforts to avoid the double tax on corporate earnings have created a misallocation of investment between the corporate and non-corporate sectors and rapid growth in the use of S corporations, partnerships, and other entities that do not pay corporate income tax.“The taxpayers retain the post-tax income, while the whole pre-tax income, tax including, forms the national resources. A mismatch between the actual income as perceived by taxpayers and the taxable income distorts economic incentives by providing tempting ways to boost their difference. It promotes tax planning to maximize the post-tax income to the detriment of the pre-tax one: “We have seen how preferences in the tax code cause taxpayers to devote more resources to tax-advantaged investments and activities at the expense of other more productive alternatives.“Shareholders control corporations and bear their tax burdens: “Economists at both the Treasury Department and the Congressional Budget Office assume that the burden of the corporate income tax is borne entirely by owners of capital.”Proposals to Fix America’s Tax System. Connie Mack, III (Chairman), John Breaux (Vice-Chairman), Jeffrey F. Kupfer (Executive Director), Members: William E. Frenzel, Elizabeth Garrett, Edward P. Lazear, Timothy J. Muris, James M. Poterba, Charles O. Rossotti, Liz Ann Sonders.www.treasury.gov/resource-center/tax-policy/Documents/Report-Fix-Tax-System-2005.pdf (They also note that, over time, capital flight may shift part of the combined tax burden onto employees and consumers.) Both corporate tax and personal taxes on dividends and capital gains in combination reduce shareholders comprehensive incomeR.M.Haig. The Concept of Income. In R.M.Haig(ed). The Federal Income Tax, 1921. which includes the change in their stock portfolio value.Changes of stock value are hard to legally define and timely tax.L.Levin. Taxation and Valuation. Tax Notes Federal, 164(7):1065-1067, section “Cash Taxes Cannot Avoid Distortion of Incentives”www.taxnotes.com/tax-notes-federal/tax-policy/taxation-and-valuation/2019/08/12/29rhnibid. section “Just One Issue in a Broader Scope”. Parts of these changes have a legally recognizable source. E.g., cash earned by corporations can be taxed at the corporate level. But there are other “hidden” parts, e.g., when corporations gain valuable patents or see favorable markets shifts. They increase stock values but cannot be legally measured and timely taxed at the corporate level.These parts can be realized and taxed at the shareholders level when dividends are paid or stock trade yields capital gains. However, when owners take dividends from their shares (or gains from selling them) their cash portfolio grows but the value of their stock portfolio shrinks by the same amount, resulting in no net comprehensive income. Instead, the earlier growth of stock values gets legally recognized and (belatedly) taxed. However, this also includes growth that reflects previously taxed corporate income, resulting in double taxation.Lanfeng Kao & Anlin Chen (2011): Dividend policy and elimination of double taxation of dividends; Asia-Pacific Journal of Financial Studies. 2011Many remedies have been discussed to reduce misallocation of investment, disincentive for trading shares and taking dividends that chills capital movement, and other distortions mentioned above. Some propose lower rates of taxes on dividends, capital gains, and corporate income or complete elimination of some of them. Others aim at a better match between undertaxed and overtaxed parts of income: “Dividends and capital gains taxes have low rates but apply largely to income already taxed at the corporate level. This is widely criticized. Making dividends paid from taxed income tax-free and allowing companies to deduct capital losses (up to per-share taxed income) on share repurchase would be more consistent than lower tax rates on dividends, capital gains, and corporate income.”. Broadly accepted solutions to the problem are yet to be found; the issue remains highly controversial.Dividend tax policy
OECD tax rates
Source:WEB, 2021-05-26, Savings and Investment: The Tax Treatment of Stock and Retirement Accounts in the OECD,taxfoundation.org/savings-and-investment-oecd/, 2022-07-16, Tax Foundation, en-US, Share buy-backs are more tax-efficient than dividends when the tax rate on capital gains is lower than the tax rate on dividends.{| class=“wikitable sortable“! Country !! Top Marginal Tax Rate on Capital Gains (2021) !! Top Marginal Dividend Tax Rate (2021) !! Spread in Tax RatesSouth Korea}} | 0.0% | 44.0% | +44.0% |
Belgium}} | 0.0% | 30.0% | +30.0% |
Slovenia}} | 0.0% | 27.5% | +27.5% |
Switzerland}} | 0.0% | 22.3% | +22.3% |
Luxembourg}} | 0.0% | 21.0% | +21.0% |
Turkey}} | 0.0% | 20.0% | +20.0% |
Ireland}} | 33.0% | 51.0% | +18.0% |
New Zealand}} | 0.0% | 15.3% | +15.3% |
Czech Republic}} | 0.0% | 15.0% | +15.0% |
Canada}} | 26.8% | 39.3% | +12.5% |
United Kingdom}} | 28.0% | 38.1% | +10.1% |
Mexico}} | 10.0% | 17.1% | +7.1% |
Slovakia}} | 0.0% | 7.0% | +7.0% |
Israel}} | 28.0% | 33.0% | +5.0% |
Australia}} | 23.5% | 24.3% | +0.8% |
Austria}} | 27.5% | 27.5% | 0.0% |
Colombia}}|10.0%|10.0%|0.0% |
Denmark}} | 42.0% | 42.0% | 0.0% |
France}} | 34.0% | 34.0% | 0.0% |
Germany}} | 26.4% | 26.4% | 0.0% |
Hungary}} | 15.0% | 15.0% | 0.0% |
Iceland}} | 22.0% | 22.0% | 0.0% |
Italy}} | 26.0% | 26.0% | 0.0% |
Japan}} | 20.3% | 20.3% | 0.0% |
Norway}} | 31.7% | 31.7% | 0.0% |
Poland}} | 19.0% | 19.0% | 0.0% |
Portugal}} | 28.0% | 28.0% | 0.0% |
Sweden}} | 30.0% | 30.0% | 0.0% |
Spain}} | 26.0% | 26.0% | 0.0% |
United States}} | 29.2% | 29.2% | 0.0% |
Netherlands}} | 31.0% | 26.9% | -4.1% |
Lithuania}}|20.0%|15.0%| -5.0% |
Finland}} | 34.0% | 28.9% | -5.1% |
Chile}} | 40.0% | 33.3% | -6.7% |
Greece}} | 15.0% | 5.0% | -10.0% |
Estonia}} | 20.0% | 0.0% | -20.0% |
Latvia}}|20.0%|0.0%| -20.0% |
United States
In 2003, President George W. Bush proposed the elimination of the U.S. dividend tax saying that “double taxation is bad for our economy and falls especially hard on retired people”. He also argued that while “it’s fair to tax a company’s profits, it’s not fair to double-tax by taxing the shareholder on the same profits.“The White House: President Discusses Taking Action to Strengthen America’s Economy {| class=wikitable style="text-align:right”10% | 10% | 0% | |
15% | 15% | 0% | |
25% | 25% | 15% | |
28% | 28% | 15% | |
33% | 33% | 15% | |
15% | 15% | ||
Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), which included some of the cuts Bush requested and which he signed into law on May 28, 2003. Under the new law, qualified dividends are taxed at the same rate as long-term capital gains, which is 15 percent for most individual taxpayers. Qualified dividends received by individuals in the 10% and 15% income tax brackets were taxed at 5% from 2003 to 2007. The qualified dividend tax rate was set to expire December 31, 2008; however, the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) extended the lower tax rate through 2010 and further cut the tax rate on qualified dividends to 0% for individuals in the 10% and 15% income tax brackets. On December 17, 2010, President Barack Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The legislation extends for two additional years the changes enacted to the taxation of dividends in the JGTRRA and TIPRA.“Two Year Extension of Bush-era Tax Cut Becomes Law Published December 21, 2010. Accessed December 31, 2010. {{webarchive |url=https://web.archive.org/web/20101226091208economy.cbh.com/2010/12/two-year-extension-of-bush-era-tax-cuts-becomes-law/ |date=December 26, 2010 }}In addition, the Patient Protection and Affordable Care Act created a new Net Investment Income Tax (NIIT) of 3.8% that applies to dividends, capital gains, and several other forms of passive investment income, effective January 1, 2013. The NIIT applies to married taxpayers with modified adjusted gross income over $250,000, and single taxpayers with modified adjusted gross income over $200,000. Unlike the thresholds for ordinary income tax rates and the qualified dividend rates, the NIIT threshold is not inflation-adjusted.“Questions and Answers on the Net Investment Income Tax” Internal Revenue ServiceHad the Bush-era federal income tax rates of 10, 15, 25, 28, 33 and 35 percent brackets been allowed to expire for tax year 2012, the rates would have increased to the Clinton-era rate schedule of 15, 28, 31, 36, and 39.6 percent. In that scenario, qualified dividends would no longer be taxed at the long-term capital gains rate, but would revert to being taxed at the taxpayer’s regular income tax rate. However, the American Taxpayer Relief Act of 2012 (H.R. 8) was passed by the United States Congress and signed into law by President Barack Obama in the first days of 2013. This legislation extended the 0 and 15 percent capital gains and dividends tax rates for taxpayers whose income does not exceed the thresholds set for the highest income tax rate (39.6 percent). Those who exceed those thresholds ($400,000 for single filers; $425,000 for heads of households; $450,000 for joint filers; $11,950 for estates and trusts) became subject to a top rate of 20 percent for capital gains and dividendswww.gpo.gov/fdsys/pkg/BILLS-112hr8enr/pdf/BILLS-112hr8enr.pdf {{Bare URL PDF|date=March 2022}}CanadaIn Canada, there is taxation of dividends, which is compensated by a dividend tax credit (DTC) for personal income in dividends from Canadian corporations. An increase to the DTC was announced in the fall of 2005 in conjunction with the announcement that Canadian income trusts would not become subject to dividend taxation as had been feared. Effective tax rates on dividends will now range from negative to over 30% depending on income level and different provincial tax rates and credits. Starting 2006, the Government introduced the concept of eligible dividends.WEB,carleton.ca/profbrouard/wp-content/uploads/PWCTaxFactsFiguresEN_2006.pdf, PwC Tax Facts and Figures, Income not eligible for the Small Business Deduction and therefore taxed at higher corporate tax rates, can be distributed to the shareholders and taxed at a lower personal tax rate.IndiaIn India, earlier dividends were taxed in the hands of the recipient as any other income. However, since 1 June 1997, all domestic companies were liable to pay a dividend distribution tax on the profits distributed as dividends resulting in a smaller net dividend to the recipients. The rate of taxation alternated between 10% and 20%Indian dividend distribution taxes are subject to a surcharge since 2000 and an education cess since 2004 â {{As of|2007|lc=on}} the effect is to increase the tax to 1.133 times the rate, as per the sub-sections (4), (11) and (12) of the section 2 of the WEB,www.taxmann.net/Directtaxlaws/FA2007.pdf, Finance Act 2007, dead,www.taxmann.net/Directtaxlaws/FA2007.pdf," title="web.archive.org/web/20080910031807www.taxmann.net/Directtaxlaws/FA2007.pdf,">web.archive.org/web/20080910031807www.taxmann.net/Directtaxlaws/FA2007.pdf, 2008-09-10, {{small|(245 KiB)}} until the tax was abolished with effect from 31 March 2002.Section 115-O {{webarchive |url=https://web.archive.org/web/20090208180034law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/section115O.htm |date=February 8, 2009 }} of the Income Tax Act in India as of 2002, added by the Finance Act 1997 {{webarchive |url=https://web.archive.org/web/20090207021154law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115oft91.htm |date=February 7, 2009 }}, modified by the Finance Acts 2000, 2001 {{webarchive |url=https://web.archive.org/web/20090207020246law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115oft92.htm |date=February 7, 2009 }} and 2002 {{webarchive |url=https://web.archive.org/web/20090207020610law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115oft91a.htm |date=February 7, 2009 }} The dividend distribution tax was also extended to dividends distributed since 1 June 1999 by domestic mutual funds, with the rate alternating between 10% and 20% in line with the rate for companies, up to 31 March 2002. However, dividends from open-ended equity oriented funds distributed between 1 April 1999 and 31 March 2002 were not taxed.Section 115R {{webarchive|url=https://web.archive.org/web/20090207020736law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/section115R.htm |date=February 7, 2009 }} of the Income Tax Act in India as of 2002, added by the Finance Act 1999 {{webarchive|url=https://web.archive.org/web/20090207020251law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft95.htm |date=February 7, 2009 }}, modified by the Finance Acts 2000, 2001 {{webarchive|url=https://web.archive.org/web/20090207020615law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft96.htm |date=February 7, 2009 }} and 2002 WEB,law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft95a.htm, Archived copy, 2008-02-07, dead,law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft95a.htm," title="web.archive.org/web/20090207015600law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft95a.htm,">web.archive.org/web/20090207015600law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft95a.htm, 2009-02-07, WEB,law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft95b.htm, Archived copy, 2008-02-07, dead,law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft95b.htm," title="web.archive.org/web/20090207020348law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft95b.htm,">web.archive.org/web/20090207020348law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec115rft95b.htm, 2009-02-07, Hence the dividends received from domestic companies since 1 June 1997, and domestic mutual funds since 1 June 1999, were made non-taxable in the hands of the recipients to avoid double-taxation, until 31 March 2002.Sub-section (34) of the section 10 {{webarchive|url=https://web.archive.org/web/20090207015635law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/section10.htm |date=February 7, 2009 }} of the Income Tax Act in India as of 2002, added by the Finance Act 1997 {{webarchive|url=https://web.archive.org/web/20090206184912law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec10ft396.htm |date=February 6, 2009 }}, modified by the Finance Act 1999 {{Webarchive|url=https://web.archive.org/web/20090206184912law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec10ft396.htm |date=2009-02-06 }} and removed by the Finance Act 2002 {{webarchive|url=https://web.archive.org/web/20090207021749law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2002ITAct/ITACT2002/ftnsec10ft395a.htm |date=February 7, 2009 }} â The tax on dividends from companies was excluded since the tax assessment year 1 Apr 1998â31 Mar 1999, i.e. for income received since the financial year 1 Apr 1997â31 Mar 1998, however the section 115-O was introduced only with effect from 1 June 1997. Similarly for dividends from mutual funds the tax was excluded since the assessment year 2000-2001, i.e. for income received since 1 June 1999. The tax was brought back for the assessment year 2003-2004, i.e. for income received since 1 April 2002.The budget for the financial year 2002â2003 proposed the removal of dividend distribution tax bringing back the regime of dividends being taxed in the hands of the recipients and the Finance Act 2002 implemented the proposal for dividends distributed since 1 April 2002. This fueled negative sentiments in the Indian stock markets causing stock prices to go down.WEB,specials.rediff.com/money/2008/feb/06slide3.htm, rediff.com: How the Budget affects the Sensex, 14 May 2015, However the next year there were wide expectations for the budget to be friendlier to the marketsWEB,specials.rediff.com/money/2008/feb/06slide2.htm, rediff.com: How the Budget affects the Sensex, 14 May 2015, and the dividend distribution tax was reintroduced.Hence the dividends received from domestic companies and mutual funds since 1 April 2003 were again made non-taxable at the hands of the recipients.Sub-sections (34), (35) of the section 10 {{webarchive |url=https://web.archive.org/web/20090214105352www.taxmann.net/Directtaxlaws/Act2007/section10.htm |date=February 14, 2009 }} of the Income Tax Act in India {{As of|2007|lc=on}}, added by the Finance Act 2003 {{webarchive |url=https://web.archive.org/web/20090214122905www.taxmann.net/Directtaxlaws/Act2007/ftn374section10.htm |date=February 14, 2009 }} â The tax was excluded since the tax assessment year 2004â2005, i.e. for income received since 1 Apr 2003. However the new dividend distribution tax rate for companies was higher at 12.5%, and was increased with effect from 1 April 2007 to 15%.WEB,www.taxmann.net/Directtaxlaws/Act2007/section115O.htm, Taxmann.net::..Direct Tax Laws, 14 May 2015, dead,www.taxmann.net/Directtaxlaws/Act2007/section115O.htm," title="web.archive.org/web/20090214111901www.taxmann.net/Directtaxlaws/Act2007/section115O.htm,">web.archive.org/web/20090214111901www.taxmann.net/Directtaxlaws/Act2007/section115O.htm, 14 February 2009, Also, the funds of the Unit Trust of India and open-ended equity oriented funds were kept out of the tax net {{Verify source|date=February 2008}}. The taxation rate for mutual funds was originally 12.5% but was increased to 20% for dividends distributed to entities other than individuals with effect from 9 July 2004.Section 115R {{webarchive |url=https://web.archive.org/web/20090208180629law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2004ITAct/section115R.htm |date=February 8, 2009 }} of the Income Tax Act in India as of 2004, modified after 2002 by the Finance Act 2003 {{webarchive |url=https://web.archive.org/web/20090207015820law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2004ITAct/ftn91_1_563.htm |date=February 7, 2009 }} and Finance (No. 2) Act 2004 {{webarchive |url=https://web.archive.org/web/20090207022152law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2004ITAct/ftn91a_1_563.htm |date=February 7, 2009 }} With effect from 1 June 2006 all equity oriented funds were kept out of the tax net but the tax rate was increased to 25% for money market and liquid funds with effect from 1 April 2007.WEB,www.taxmann.net/Directtaxlaws/Act2007/section115R.htm, Taxmann.net::..Direct Tax Laws, 14 May 2015, dead,www.taxmann.net/Directtaxlaws/Act2007/section115R.htm," title="web.archive.org/web/20090214141158www.taxmann.net/Directtaxlaws/Act2007/section115R.htm,">web.archive.org/web/20090214141158www.taxmann.net/Directtaxlaws/Act2007/section115R.htm, 14 February 2009, Dividend income received by domestic companies until 31 March 1997 carried a deduction in computing the taxable income but the provision was removed with the advent of the dividend distribution tax.Section 80M {{webarchive |url=https://web.archive.org/web/20090207020545law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/1997ITAct/itac3zzh.htm |date=February 7, 2009 }} of the Income Tax Act in India as of 1997, added by the Finance (No. 2) Act 1967 {{webarchive |url=https://web.archive.org/web/20090207020220law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/1997ITAct/itac4q5w.htm |date=February 7, 2009 }}, modified by various Finance Acts and removed by the Finance Act 1997 {{webarchive |url=https://web.archive.org/web/20090207021743law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/1997ITAct/itac2iht.htm |date=February 7, 2009 }} â The deduction was removed since the tax assessment year 1998â1999, i.e. for income received since 1 Apr 1997. A deduction to the extent of received dividends redistributed in turn to their shareholders resurfaced briefly from 1 April 2002 to 31 March 2003 during the time the dividend distribution tax was removed to avoid double taxation of the dividends both in the hands of the company and its shareholdersSection 80M {{webarchive |url=https://web.archive.org/web/20090207015636law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2003ITAct/Act2003/Section80m.htm |date=February 7, 2009 }} of the Income Tax Act in India as of 2003, added by the Finance Act 2002 {{webarchive |url=https://web.archive.org/web/20090207021200law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2003ITAct/Act2003/ftn55p469.htm |date=February 7, 2009 }} and removed by the Finance Act 2003 {{webarchive |url=https://web.archive.org/web/20090207022107law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2003ITAct/Act2003/ftn54Ap469.htm |date=February 7, 2009 }} but there has been no similar provision for dividend distribution tax. However the budget for 2008â2009 proposes to remove the double taxation for the specific case of dividends received by a domestic holding company (with no parent company) from a subsidiary that is in turn distributed to its shareholders.WEB,indiabudget.nic.in/ub2008-09/bs/speecha.htm, Government of India : Union Budget and Economic Survey indiabudget.nic.in), 14 May 2015, Budget 2020-2021 saw abolishment of DDT(dividend distribution tax) and the dividend income being taxed in the hands of investor according to income tax slab rates.NEWS, RIP dividend distribution tax! But are you still feeling a hangover?, The Economic Times,economictimes.indiatimes.com/markets/stocks/news/rip-dividend-distribution-tax-but-are-you-still-feeling-a-hangover/articleshow/75624666.cms, 2021-02-15, WEB, Taxability Of Dividend â Pre & Post Budget Analysis - Tax - India,www.mondaq.com/india/withholding-tax/934760/taxability-of-dividend-pre-post-budget-analysis, 2021-02-15, www.mondaq.com,KoreaKorea regulates the amount of possible dividends, payment time of dividends, and how to make decisions on dividends in the commercial law, since dividends are considered an outflow of profits from the company. Currently, 15.4 percent of dividend tax is collected as soon as the dividend is paid (private : 14% of the dividend income tax, residence tax : 1.4% of the dividend income tax). Separate taxation is possible below â©20 million(â¬15 thousand) of dividend income, and if it is exceed, they become subject to total taxation. In addition, if the financial income (interest, dividend income) exceeds â©20 million, a report of total income tax must be made. In the relationship between shareholders and creditors, the main principle of the commercial law is that the rights of company creditors should take precedence over those of shareholders who have limited liability to the property of the company. Stockholders always want to receive more money, but from the firm point of view, if they allocate too much money, the reduction of equity capital could lead to the failure of the company. That’s why government regulates the possible amount of dividends.KSD(Korean Security Depositor)Other countriesAustralia, Chile and New Zealand have a dividend imputation system, which entitles shareholders to claim a tax credit for the franking credits attached to dividends, being a share of the corporate tax paid by the corporation. A recipient of a fully franked dividend on the top marginal tax rate will effectively pay only about 15% tax on the cash amount of the dividend. In effect, when distributed as dividends, the profits of a corporation are taxed at the average of the shareholders’ marginal tax rates; otherwise they are taxed at the corporate tax rate.See also
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