International tax arbitrage via corporate income splitting

Satish Chand

Quantitative Finance, 2002, vol. 2, issue 2, 111-115

Abstract: If capital for corporate finance was available from a common global pool and at zero transaction cost, then does after-tax arbitrage require harmonization of income tax rates across jurisdictions? This paper shows that the answer is in the negative. When a corporation has the choice of deciding the fraction of income that it distributes as dividends with the remainder held for future capitalization, then such choice brings about arbitrage in after-tax rates of return to investors facing a common pre-tax return but different rates of income taxes. Policy implications are drawn from this result.

Date: 2002
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DOI: 10.1088/1469-7688/2/2/302

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