Monday, March 07, 2005

What type of integration? the discussion continues!

The common goal of integration is to alleviate the over ("double") taxation of corporate profits, consequently reducing the effective tax rates on returns on investments through corporations. Yariv Brauner (Arizona State) has posted an interesting paper called Integration in an Integrating World on SSRN. The article first identifies and elaborates on this contemporary trend of conceding integration and discusses the recent moves away from integration in some major economies, analyzing the reasons for such moves. Here is an abstract:

During the second half of the last century many countries gradually replaced their so-called classical corporate tax regimes, under which corporate earnings were taxed twice - once in the hands of the corporation, and again when distributed to corporate shareholders as dividends - with an integrated regime (imputation), which taxed such earnings only once. The driving force behind this trend was the expectation of significant efficiency gains. This clear and gradual trend has been abruptly reversed with the turn of the century. The phenomenon we call globalization, and in particular the proliferation of cross-border business and investment, has materially contributed to this dramatic sea change in the corporate tax world. The conventional wisdom was that imputation is unsustainable in a world whose markets integrate. This article argues that the abandonment of imputation is partly a consequence of our essentially non-cooperative world in terms of tax policy coordination. It concludes that imputation does not have to be the victim of globalization – it can be retained to the benefit of many countries, but only through enhanced international cooperation and coordination of tax policies.


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