Corporations or shareholders: who to tax?

Corporate tax rates are currently subject to a race-to-the-bottom between the Member States of the European Union. The latest Member State to announce a reduction of its statutory tax rate (to a, from a Belgian perspective, stunning 9%) is Hungary (read here). Theresa May has set the goal for the UK to keep its status as having the lowest corporation tax rate among the G20 group of countries (read here).

This race-to-the-bottom begs the question why corporations should pay taxes in the first place. Why not just tax shareholders on profits derived from corporations? A higher shareholder tax could compensate (the budgettary consequences from) the abolition of corporate tax.

In a recent article published in the Columbia Law Review, David M. Schizer recommends, however, maintaining both corporate and shareholder taxes. Using both taxes has three important advantages. First, if one is avoided, the other still raises some revenue. Second, if the goal is to deter a planning strategy, cutting the rate to zero is an overreaction. Third, if one tax is cut instead of repealed, the other can be correspondingly lower. The article can be read here.

Author: Arie Van Hoe

Lawyer (NautaDutilh), voluntary scientific collaborator (University of Antwerp)

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