Which of the following is not a consequence of the double tax on dividends? Corporations have an incentive to retain earnings and structure distributions to avoid dividend treatment Corporations have an incentive to invest in non-corporate rather than corporate businesses. The cost of capital for corporate investments is increased. Corporations have an incentive to finance operations with debt rather than equity All of the above are consequences of the double tax on dividends.

Question

Ollie

Business

11 April, 09:58

Which of the following is not a consequence of the double tax on dividends? Corporations have an incentive to retain earnings and structure distributions to avoid dividend treatment Corporations have an incentive to invest in non-corporate rather than corporate businesses. The cost of capital for corporate investments is increased. Corporations have an incentive to finance operations with debt rather than equity All of the above are consequences of the double tax on dividends.

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Kieran Parsons · Answer 1

All of the above are consequences of the double tax on dividends.

Explanation:

Double taxation can be defined as a tax principle where an individual or business entity pays an income tax twice for the same source of income. This could be as a result of charging income tax at both the personal and corporate level.

Also, it could happen in international trade as well, where investors are taxed on their investments in two different countries.

Double tax on dividends usually occurs when companies pay out dividends to shareholders, government tax them twice when the money is being paid to the shareholders.

First taxation is at the end of the year when companies are required to pay taxes on its earnings to the government while a second taxation occur when dividends are paid to shareholders, which is still from the company's earnings after tax are deducted.

This simply means that, tax are being paid by shareholders pay as co-owners of a company and lastly as individuals, who are taxed on income of dividends.

The consequence of the double tax on dividends is that return on equity investments in a company is taxed twice.

However, the following statements are not a consequence of the double tax on dividends;

1. Corporations have an incentive to retain earnings and structure distributions to avoid dividend treatment.

2. Corporations have an incentive to invest in non-corporate rather than corporate businesses.

3. The cost of capital for corporate investments is increased.

4. Corporations have an incentive to finance operations with debt rather than equity.