Accumulated Profits Tax -- Surtax on earnings that are kept back by a business for the purpose of circumventing the higher income taxes that would fall on them if the revenues were handed out as dividends.
Retention of earning above the prescribed limit is allowed if it meets fair business requirements; otherwise the surtax is imposed. As a lot of discretion is exercised in deciding upon the just needs of a business, some firms pay bloated dividends or go even so far as to carry out mergers in order to avoid the accumulated profits tax. Also called accumulated earnings tax.
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