Working Paper Series, Department of Economics, Uppsala University
No 2002:8:
Methods of Mitigating Double Taxation
Tobias Lindhe
Abstract: This paper presents a comprehensive overview of existing
methods of mitigating double taxation of corporate income within a standard
cost of capital model. Two of the most well-known and most utilized
methods, the imputation and the split rate systems, do not mitigate double
taxation in corporations where the marginal investment is financed with
retained earnings. However, all methods are effective when the marginal
investment is financed with new share issues. The corporate tax rate,
fiscal allowances, allocation to periodization funds and allocation to tax
equalization reserves (or allowance for corporate equity) are effective
instruments, independent of the sources of financing. The paper also
discusses why so many different methods have been employed in mitigating
double taxation.
Keywords: Corporate Taxation; Double Taxation; Cost of Capital; (follow links to similar papers)
JEL-Codes: G32; H25; H32; (follow links to similar papers)
44 pages, May 2, 2002
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