Abstract

http://ssrn.com/abstract=2340152
 


 



When We Taxed the Pyramids


Steven A. Bank


University of California, Los Angeles (UCLA) - School of Law

October 14, 2013

41 Florida State University Law Review 39 (2013)
UCLA School of Law, Law-Econ Research Paper No. 13-18

Abstract:     
One of the more anomalous features of the corporate income tax is the dividends received deduction, which permits a corporation to deduct from income an amount equal to some or all of the dividends it receives in its capacity as a shareholder of another domestic corporation. It is neither a device for avoiding multiple layers of taxation, since some intercorporate dividends are only partially deductible, nor is it a device for differentiating true dividends from distributions that are mere shifts in money from a corporation’s right pocket to its left pocket, since even a corporation that owns a single share of stock in a large public corporation can still exclude most of the dividend from income. Treasury’s Office of Tax Policy has called the provision distortionary and identified its reform as one method of improving the competitiveness of U.S. businesses abroad.

This paper, written for a Florida State University College of Law symposium on the 100th anniversary of the federal income tax, explores the evolution of the tax treatment of intercorporate dividends. The original rationale for taxing intercorporate dividends was to discourage the formation and continued existence of corporate pyramids, or multi-level corporate chains of ownership in which the investors at the top of the chain are able to leverage a relatively small investment in one corporation in order to exercise power and influence over the entire group. At the time, this pyramidal structure was thought to facilitate corporate governance issues, tax evasion, and undue political power and influence. Although the resulting tax burden from the introduction of intercorporate dividend taxation was too small to force an immediate change in organizational structures, it was part of a multi-faceted campaign against corporate pyramids that included the enactment of the Public Utility Holding Company Act and the repeal of the consolidated return filing privilege. As concern about pyramids declined and the consolidated return was revived, the continued existence of the intercorporate dividends tax was ripped from its original moorings and left to drift toward its current incoherent position. Although reform efforts have been largely ineffective over the last several decades, the rise in multinational corporations may force movement in this area.

Number of Pages in PDF File: 39

Keywords: corporate taxation, intercorporate dividend taxes, tax reform

Accepted Paper Series


Download This Paper

Date posted: October 15, 2013 ; Last revised: April 11, 2014

Suggested Citation

Bank, Steven A., When We Taxed the Pyramids (October 14, 2013). 41 Florida State University Law Review 39 (2013); UCLA School of Law, Law-Econ Research Paper No. 13-18. Available at SSRN: http://ssrn.com/abstract=2340152

Contact Information

Steven A. Bank (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-794-7601 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 302
Downloads: 78
Download Rank: 184,124

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.531 seconds