US to eliminate double taxation on company dividends: money laundering KYC false positives to boom?
The plan to eliminate a system that charges tax on company profits and then taxes shareholders is welcome news for many. But your computerised KYC monitoring may be about to go into overdrive.
The USA is to make a radical change to the way that company dividends are treated under taxation. At present, in common with many other countries, the USA taxes a company on profits. The balance is available for distribution as dividends or to be retained. Also, in common with many other countries, dividends are taxable in the hands of the shareholder.
According to US tresuary figures, this means that as little as 40% of corporate profit actually reaches shareholders.
The proposal, widely telegraphed over the past few days, is that dividends should no longer be taxed in the hands of shareholders. The stated objective is that the benefits should pass to the significant number of elderly people. However, the results will be much wider: for example, pension funds will also receive an immediate and significant boost.
However, there is another side to this: nothing in the outlines of the measures suggests that the treatment will apply only to public companies. This means that it will be much more tax efficient for owners of private companies to take their pay in dividends rather than salary.
The result of this will be a change in the financial profiles of the owners of many businesses. A mix of salary, bonuses, advances and dividends will change significantly and, as a result, the "KYC" data for them is likely to create changes that systems will regard as out of profile and therefore produce exception reports. These will in many cases be false positives (reports that on investigation turn out to be not at all suspicious) and the cost of dealing with these reports may be substantial.
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