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Dividend imputation is a corporate tax system in which some or all of the tax paid by a company may be attributed, or imputed, to the shareholders by way of a tax credit to reduce the income tax payable on a distribution. In comparison to the classical system, it reduces or eliminates the tax disadvantages of distributing dividends to shareholders by only requiring them to pay the difference between the corporate rate and their marginal tax rate. The imputation system effectively taxes distributed company profit at the shareholders' average tax rates.
Australia, Malta[1] and New Zealand have imputation systems. Canada, Korea and the United Kingdom have a partial imputation system.[2] Germany had a dividend imputation system until 2000 and France until 2004.
The objective of the dividend imputation system is to collect tax on distributed income at the shareholder's tax rate,[3] in order to eliminate double taxation of company profits, once at the corporate level and again on distribution as a dividend to shareholders. Other jurisdictions which do not have dividend imputation achieve a similar result by only taxing dividends at the shareholder level. For example, Chile has tax integration,[4] and all applicable company profits are taxed only at the shareholder's tax rate, achieving a similar outcome to imputation. Others (Singapore, for example) eliminate double taxation in a different way, by not taxing dividends in the hands of the shareholder and only at the company level. Under this arrangement the shareholders obtain a tax benefit even though the company may not have paid any tax at the corporate level, and it also benefits non-resident shareholders.
^"Tax Laws of Malta". Legal Library of Malta Laws.
^The Australia Institute, How the government loses 48 per cent of company tax: Dividend imputation and franking credits Archived 20 October 2016 at the Wayback Machine by David Richardson
^Campbell, J. K. (1 September 1981). Australian Financial System – Final Report of the Committee of Inquiry (PDF) (Report). p. 216.
^Deloitte, International Tax: Chile Highlights 2019 Archived 2 December 2020 at the Wayback Machine by Joseph Courand
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