Integration of Corporation and Individual Income Taxes: Arguments For and Against

Abstract

Most countries levy an individual income tax whose tax base includes dividends (distributions to shareholders paid out of corporate profits). As a general rule, these countries at the same time treat corporations for tax purposes as entities separate from their shareholders and levy a corporation income tax under which corporate profits are taxed to corporations as they are earned. The term “integration” relates to the reciprocal relationship between the corporation income tax and the individual income tax. As commonly used in the context of taxation, integration refers to a variety of tax techniques that, while different in form, have a common aim: the elimination or the reduction of the “extra” burden of the corporation income tax on distributed profits.

This chapter incorporates substantial revisions suggested by Mitsuo Sato of the Japanese Ministry of Finance