Accumulated Earnings Tax

外汇网2021-06-19 13:34:37 95

A tax imposed by the federal government upon companies with retained earnings deemed to be unreasonable and in excess of what is considered ordinary.

Taobiz explains Accumulated Earnings Tax

The federal government produced this tax to deter investors from negatively influencing a company's decision to pay pidends. Essentially, this tax persuades companies to issue pidends, rather than retaining the earnings.

The pmise behind this tax is that companies that retain earnings typically experience higher stock price appciation. Although this is beneficial to stockholders, as capital gains taxes are lower than pidend taxes, it is detrimental to the government because tax revenues decrease. By adding an extra tax upon a firm's retained earnings, the taxman will either collect more taxes from the company or persuade them to issue pidends, thereby allowing the government to collect from the stockholders.

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