# Corporate Finance: Taxes

I just wanna make sure, when calculating shareholder’s effective tax rate, the double taxation system calculation is similar to the split rate system? i.e. Double taxation system = Corporate tax + [(1-Corporate tax) x Shareholder’s tax] Split rate tax system = Corporate tax + [(1-Corporate tax) x Shareholder’s tax]

I think in Split rate tax system the corporate tax for dividends is different than retained earnings tax. Correct me if I am wrong. Anish

that is true; under the split rate system RE are taxed at a different rate than the Dividends. but when calculating the shareholder’s ETR, its similar to the double taxation system…

for split rate OR double taxation: t + (1-t)xETR, where t = corporate tax rate for double taxation system OR corporate dividend tax rate for split rate system, ETR = individual effective tax rate. just re-arrange schweser’s stupid formula

Usif Wrote: ------------------------------------------------------- > I just wanna make sure, when calculating > shareholder’s effective tax rate, the double > taxation system calculation is similar to the > split rate system? i.e. > > Double taxation system = Corporate tax + > [(1-Corporate tax) x Shareholder’s tax] > Split rate tax system = Corporate tax + > [(1-Corporate tax) x Shareholder’s tax] that’s correct, just make sure that you use Corporate tax on dividends (in the first situation it’s the same as tax on retained earnings, but different from tax on retained earnings in the second situation)

I am still confused by this one, so please correct me where I am wrong: Double Taxation: Corp rate (RE) + [1 - Corp rate (RE)](Individual rate) Split Rate: Corp rate (RE) + [1 - Corp rate (DIV)](Individual rate) Is this right?

looks right to me

thank you sir

looks good corp tax for first + ind dividend tax for second + ind

pdxanalytics Wrote: ------------------------------------------------------- > I am still confused by this one, so please correct > me where I am wrong: > > > Double Taxation: Corp rate (RE) + [1 - Corp rate > (RE)](Individual rate) > > > Split Rate: Corp rate (RE) + [1 - Corp rate > (DIV)](Individual rate) > > Is this right? Isn’t Split rate Corp rate (DIV) + [1 - Corp rate(DIV)](Individual rate)

Isn’t Split rate Corp rate (DIV) + [1 - Corp rate(DIV)](Individual rate) anyone know for sure?

Yes I think this is what is meant when pvt said dividend tax for split rate…it’s the corporate dividend tax rate, opposed to just the corporate tax on earnings; hope that makes sense.