The Study on the Reform of the Tax Integration System
Date Issued
2009
Date
2009
Author(s)
Chen, Yu-Tung
Abstract
Double taxation of dividends has distortion effects on corporate financial and investment decision making. Double taxation encourages companies to issue debt, rather than equity, to retain, rather than distribute corporate earnings. The goal of the tax integration system is to ensure that corporate income be taxed once to reduce tax-induce distortions. The integration system came into effect in 1998 in the Republic of China, but it causes tax-related administrations to be very complicated. Retained earnings of companies are levied additionally at ten percent rate. The enterprises also complained about taxation on undistributed earnings with the reason that coporations need retained earnings to supoort sound operations. However, many OECD companies and European Union have recently replaced shareholder-credit integration system with a partial exclusion for dividends, in order to avoid discrimination against foreign investment. In Singapore, the one-tier corporate taxation system was introduced in 2002 to replace the imputation system. Under this system, corporate income is taxed at the corporate level and this is a final tax and can greatly simplify the tax code and reduce cost of tax compliance. In summary, whether our country should replace the imputation credit system with the dividend-exemption system like Singapore and set a five-year transitional period to utilize the imputation credit account balances is the main body of the thesis.
Subjects
the imputation credit system
the dividend-exemption system
five-year transitional period
Double taxation
the tax integration system
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