If the corporate tax rate is 35%, what is the maximum effective tax rate on dividends received by another corporation?
A) 35%
B) 30%
C) 10.5%
D) None of the above

Question

Quizplus · Accepted Answer

The maximum effective tax rate on dividends received by another corporation is the result of the corporate tax rate multiplied by the percentage of the dividend that is not exempt from taxes. The percentage of the dividend that is not exempt from taxes is 70% (100% - 30% dividend received deduction). Therefore, the maximum effective tax rate is 35% x 70% = 24.5%, which is equivalent to 10.5% (100% - 24.5%) after factoring in the dividend received deduction.

If the Corporate Tax Rate Is 35%, What Is the Maximum