Tax Strategies and Dividend Imputation: The Effect of Foreign and Domestic Ownership on Average Effective Tax Rates

26 Pages Posted: 30 Oct 2000

See all articles by Brett R. Wilkinson

Brett R. Wilkinson

Baylor University - Department of Accounting & Business Law

Steven F. Cahan

University of Auckland Business School

Geoff Jones

Massey University - School of Accountancy

Date Written: September 2000

Abstract

This study examines how dividend imputation affects the incentive of New Zealand firms to minimise tax. By effectively eliminating double taxation on company income, imputation reduces firms' incentives to engage in costly tax minimisation strategies. Before September 1993, resident and non-resident shareholders were treated differently under New Zealand's imputation system. Because imputation credits cannot be passed to shareholders unless dividends are paid, we expect firms to pursue different tax paying strategies depending on their level of foreign ownership and their dividend payout ratios. After September 1993 when imputation credits were extended to non-resident portfolio shareholders, we expect that firms with high foreign ownership and high dividend payouts would have less incentive to minimise tax. Our results provide some support for these expectations.

JEL Classification: G35, H25

Suggested Citation

Wilkinson, Brett R. and Cahan, Steven F. and Jones, Geoff, Tax Strategies and Dividend Imputation: The Effect of Foreign and Domestic Ownership on Average Effective Tax Rates (September 2000). Available at SSRN: https://ssrn.com/abstract=242778 or http://dx.doi.org/10.2139/ssrn.242778

Brett R. Wilkinson

Baylor University - Department of Accounting & Business Law ( email )

Waco, TX 76798
United States

Steven F. Cahan (Contact Author)

University of Auckland Business School ( email )

Faculty of Business & Economics
Private Bag 92019
Auckland
New Zealand

Geoff Jones

Massey University - School of Accountancy ( email )

New Zealand

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