In 152 Tax Notes 957 (August 15, 2016).


The U.S. Senate Finance Committee has invested significant resources, including hearings and staff reports, to make the case for an unusual form of corporate dividend integration – a corporate dividends-paid deduction, combined with a universal shareholder dividend withholding tax collected from the firm. This proposal would not reduce the cash tax outlays of U.S. corporations in respect of distributed or retained earnings. It would not reduce the aggregate tax burdens imposed on most shareholders, and in many plausible circumstances would raise those tax costs. It is a poorly targeted response to design weaknesses in the U.S. international corporate tax system. Its efficiency gains are undeveloped and largely overstated.

This unusual form of dividend integration is really designed to offer U.S. firms a quick and dirty form of costless corporate tax reform, in which their financial accounting effective tax rate decreases, but for entirely artificial reasons. It also would offer U.S. multinational firms the ability to repatriate their permanently reinvested earnings held in foreign subsidiaries and redistribute those sums to shareholders without a nominal corporate income tax charge for financial accounting purposes, but at the cost to shareholders of raising their all-in burdens beyond what could be expected in broad-scale corporate tax reform.

The dividends-paid form of dividend integration has been wheeled forward in the manner of a true Trojan horse, seemingly offering a free gift of the end of double taxation, but all the while containing in its belly the agenda of U.S. multinationals desperate to record lower effective tax rates for financial statement purposes, and to escape from under the mountain of offshore earnings that are the result of their own aggressive stateless income gaming.


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