Taxes and company dividends: a micro-econometric investigation exploiting cross-section variation

Double taxation of company dividends is reduced in the UK by a partial imputation system of corporation tax, which was introduced in 1973. Payments of advance corporation tax (ACT) charged on dividend distributions can normally be offset against the firm's corporation tax liability. However, for companies with surplus advance corporation tax, this ACT setoff is deferred and its value is reduced by discounting. Firms in a surplus ACT position face a higher tax cost of paying dividends than firms without surplus ACT.