Dividend Imputation Systems in Industrialized Countries: An Examination of Relative Tax Burdens

Dividend taxation has been a controversial issue especially since the enactment of the 2003 U.S. legislation entitled “Jobs and Growth Tax Relief Reconciliation Act” (JGTRRA). This paper presents taxonomy of dividend tax systems and illustrates dividend relief practices in the OECD (Organization for Economic Cooperation and Development) countries. None of the OECD countries follow the conduit (i.e., full imputation) system, and the classical system (where double taxation of dividends occurs) prevailed only in one country (Ireland) other than U.S. in 2003. Dividend imputation in most of the OECD countries is only partial and takes place at the shareholder level in the form of tax credit or split rate. The paper also demonstrates a method to compute the effective tax rates (corporate plus individual taxes) on dividends, and presents such rates for the OECD countries. In comparison with the average dividends tax rate of 39.6% in other OECD countries, the U.S. had a rate of 60.7%, which JGTRRA has brought down to 44.8%.