The Taxation of Corporations and Shareholders in Israel: The Necessity for a Comprehensive Tax Reform
5 Florida International Law Journal 327, 1990
22 Pages Posted: 22 Apr 2012
Date Written: 1990
The Israeli model of taxation of corporations and shareholders is based on a partial integration model. This regime has two components which create the partial integration: First, the reduced corporate income tax rate at the corporate level on distributed and retained earnings. Second, the reduced income tax rate at the shareholders (individuals) level on dividends. The regime had been developed gradually during the years and it was considered a reasonable system, on comparative level, from theoretical and practical perspectives. Following the developments of attractive income and corporate tax regimes worldwide, the Israeli system might be considered as an old approach that required several fundamental adjustments. After the drastic reduction of the inflation rate in Israel and the successful operation of the comprehensive adjustment of the income tax to inflation, the issue of the desirable tax regime on corporate and shareholder income has been placed at the top of the fiscal agenda. The article suggests that the regime of partial integration should be replaced, by a new regime that will maximize equity and efficiency, based, inert alia, on the international experience of foreign tax regime.
Keywords: Tax, Corporate Tax, Shareholders, Income Tax, Israel
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