The OECD has published a working paper on the implications for OECD tax systems of tax arbitrage through closely held businesses.
The paper finds that tax incentives to incorporate and earn capital income through corporations have increased in the last two decades. It shows that there has been an increase in incorporated businesses in many OECD countries, which has been partly driven by tax factors.
The paper also finds that, in many countries, a combination of tax system features, related to corporate, dividend, capital gains, gift and inheritance taxation, provide particularly strong incentives to retain earnings inside corporations.
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