Share repurchase
Country Top Marginal Tax Rate on Capital Gains ( 2015 ) Top Marginal Dividend Tax Rate ( 2015 ) Spread in Tax Rates
South Korea 0.0% 35.4% +35.4%
Belgium 0.0% 25.0% +25.0%
Netherlands 0.0% 25.0% +25.0%
Slovenia 0.0% 25.0% +25.0%
Switzerland 0.0% 21.1% +21.1%
Luxembourg 0.0% 20.0% +20.0%
Ireland 33.0% 51.0% +18.0%
Turkey 0.0% 17.5% +17.5%
Czech Republic 0.0% 15.0% +15.0%
Canada 22.6% 33.8% +11.2%
France 34.4% 44.0% +9.6%
Mexico 10.0% 17.1% +7.1%
New Zealand 0.0% 6.9% +6.9%
Israel 25.0% 30.0% +5.0%
Australia 24.5% 27.1% +2.6%
Chile 20.0% 22.6% +2.6%
United Kingdom 28.0% 30.6% +2.6%
Germany 25.0% 26.4% +1.4%
Denmark 42.0% 42.0% 0.0%
Sweden 30.0% 30.0% 0.0%
Purpose -- Tax-efficient distribution of earnings
Share repurchases also allow companies to distribute their earnings to investors without resulting in immediate taxation on capital gains . For example , if a company were to pay $ 100,000 in dividends on one million shares or as 10¢ dividend per share , investors may incur tax upon this disbursement . This means that instead of receiving 10¢ of earnings per share , they receive 8.5¢ ( .10× ( 1 − .15 ) ) at a 15% tax rate with 1.5¢ going to the government . An investor with 10 shares will receive 85¢ . As the company has to pay out this money the share price drops accordingly , from $ 10 to $ 9.90 , so the investor with 10 shares now has $ 99 + 85¢ dividend , or $ 99.85 . Of course , the market will not necessarily respond to a dividend payment by selling off shares and reducing share price ; while the payment of the dividend technically reduces the company 's book value , the ability and willingness to pay a dividend is often seen positively , and the share price may even increase . Compare this with spending $ 100,000 buying back shares . This will remove 10,000 shares from the market , leaving 990,000 shares at $ 10 each ( ( $ 10,000,000 − US $ 100,000 ) /990,000 = $ 10 ) . Now , the investor with 10 shares still has US $ 100 , and the government receives no immediate tax revenue . Ultimately , there should be no net change in investor wealth assuming a fully equity-financed business . This disparity however assumes there is no capital gains tax for the selling shareholders . Share buy-backs are more tax-efficient than dividends when the tax rate on capital gains is lower than the tax rate on dividends .
Share repurchase (or stock buyback or share buyback) is the re-acquisition by a company of its own stock. It represents a more flexible way (relative to dividends) of returning money to shareholders. In most countries, a corporation can repurchase its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity; that is, cash is exchanged for a reduction in the number of shares outstanding. The company either retires the repurchased shares or keeps them as treasury stock, available for re-issuance. Under U.S. corporate law, there are six primary methods of stock repurchase: open market, private negotiations, repurchase put rights and two variants of self-tender repurchase: a fixed price tender offer and a Dutch auction, and accelerate repurchases. More than 95% of the buyback programs worldwide are through an open-market method, whereby the company announces the buyback program and then repurchases shares in the open market (stock exchange). In the late 20th and the early 21st century, there was a sharp rise in the volume of share repurchases in the United States: US$5 billion in 1980 rose to US$349 billion in 2005. Large share repurchases started later in Europe than in the United States, but are nowadays a common practice around the world. It is relatively easy for insiders to capture insider-trading-like gains through the use of open market repurchases. Such transactions are legal and generally encouraged by regulators through safe harbours against insider trading liability. U.S. Securities and Exchange Commission (SEC) rule 10b-18 sets requirements for stock repurchase in the United States.