Australia and New Zealand Maintain a Dividend Imputation System: Why?

Australia and New Zealand are the only two countries in the world that have maintained dividend imputation as the taxation system for corporate–shareholder integration. The main objective of this article is to examine the reasons why other nations have not persevered with dividend imputation and to discuss the limitations of the system that is currently being used in both countries. European countries repealed their imputation systems in 2004 when the European Union found it to be discriminatory and against their law. There is a strong argument that dividend imputation is not conducive to companies operating in an open economy especially when wanting to attract foreign investment. An imputation system is more suited for a closed economy. This article will examine the distortions created by the current dividend imputation systems and the reasons why other nations have not kept such a system. With small open economies such as that of Australia and New Zealand where foreign investment is so important, the future of dividend imputation must be critically reviewed, and its future seriously considered.