What is a profit -accumulated tax?

The accumulated profit tax is income tax evaluation to savings of companies that exceed a certain threshold. Governments expect corporations to distribute most profits to shareholders in the form of dividends, allowing the government to tax dividend divide at the shareholders' level. When the corporation retains its profits instead of distributing profits as a dividend, it disrupts the expected tax revenues of the government. In cases where corporations accumulate the amount over a certain threshold, the government imposes a special accumulated profit tax that will replace income that it does not accept through dividend divisions. In fact, governments tax the revenues of legal entities twice. Every year, the Company files a tax return and pays a net income tax for a corporate rate. It then divides part of this net income or profits to shareholders in the form of an individual. The government will re -tax this money at an individual level, because shareholders have to pay taxes on dividends received in the submission of an individual income tax return.

Corporations and shareholders are always looking for ways to avoid double taxation and reduce their total tax burden. One of the mechanisms that the corporations began to use to minimize the tax commitment was to maintain profits instead of their distribution as a dividend. This would increase the cash of the corporation at hand and would usually have a positive impact on the stock price. The shareholders could then sell their shares and profit in this way. They would have to pay the capital income tax, but the tax rate for capital profits is usually much lower than the dividend assessment.

To fight this practice, the government has introduced a tax on accumulated profit. This tax begins when a corporatenadyte has cash on hand, which it cannot justify on the basis of the expected need. For example, the company is allowed to reserves cash if it expects to pay a significant settlement of litigation in the near future, but Horde cannot simply allow cashto their shareholders to avoid paying taxes from dividends. As soon as the company cash registers exceed the threshold determined by the Tax Act in its jurisdiction without sufficient justification, it must pay the accumulated profit tax on the amount.

There may still be cases where corporations decide to pay the accumulated tax tax, not to allow shareholders to tax dividends. The Tax Act regularly changes into every jurisdiction. Tax rates applying to dividends, capital gains and accumulated profits are a smooth and correct course to minimize the tax obligation for corporation and its shareholders must be continuously evaluated.