ABSTRACT
The corporation tax is a tax levied on corporate, as contrasted with unincorporated, enterprises. 1 The following four considerations may be adduced as justifications for this differential treatment of corporate enterprise:
As we have already mentioned in Chapter 7 (p. 145), it may be thought that the privileges conferred by incorporation, and in particular the benefits of limited liability, justify the levy of an additional tax on such concerns.
As we have also mentioned in Chapter 7 (p. 145), there is the problem of the tax treatment of the undistributed profits of companies with a large number of independent shareholders. If the incomes of private businessmen are subject to a personal progressive income tax even when they are saved and ploughed back into the private business, then equality of treatment would require that company profits should be correspondingly taxed when they are ploughed back into the business. But if, for one reason or another, it is not feasible to allocate undistributed company profits for personal income tax to the individual shareholders in the manner described in Chapter 7, then some special tax on company profits will be required to approximate to this result as closely as may be feasible.
There is the straightforward revenue consideration. A tax levied on company profits at somewhat higher rates than on the corresponding personal incomes may be a convenient way of raising a considerable tax revenue.
The corporation tax already exists. It is possible that if one was starting from scratch one would wish to avoid any special tax on corporate enterprise. But in fact corporation tax already exists as an important element in the UK system of direct taxation; and this fact in itself constitutes a valid argument in favour of the continuation of some form of corporation tax. Its elimination would lead to substantial unexpected windfall gains for existing shareholders; and (as discussed in Chapter 2, pp. 13–14) there is an element of truth in the adage that ‘an old tax is a good tax’, in so far as people have adjusted their affairs in the expectation of the continuation of a tax, the elimination of which would bring unexpected windfall gains to a particular section of the community.
