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| Tekijä: | McDonald, R. L. |
| Otsikko: | Cross-Border Investing with Tax Arbitrage: The Case of German Dividend Tax Credits |
| Lehti: | Review of Financial Studies
2001 : AUTUMN, VOL. 14:3, p. 617-658 |
| Asiasana: | FINANCE FINANCING GERMANY INVESTMENT |
| Kieli: | eng |
| Tiivistelmä: | German dividends typically carry a tax credit which makes the dividend worth 42.86% more to a taxable German shareholder than to a tax-exempt or foreign shareholder. This results in a penalty for foreign investors who buy and hold German dividend-paying stocks. The author documents that, as a result of the credit, the ex-day drop exceeds the dividend by more than one-half of the tax credit, and show that futures and option prices embed more than one-half of the tax credit. The existence of the credit creates opportunities for cross-border tax arbitrage in which foreign holders of German stock transfer the dividend to German shareholders and implies that it is tax efficient for foreign investors to hold derivatives rather than investing directly in German stocks. |
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