Dividends Received Deduction - DRD

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DEFINITION of 'Dividends Received Deduction - DRD'

A tax deduction received by a corporation on the dividends paid to it by companies in which it has an ownership stake. The purpose of this deduction is to soften the consequences of triple taxation. Triple taxation occurs because the company paying the dividend does so with after-tax money and the receiving company is subject to income tax on the dividends. Therefore, if the company that receives the dividends decides to pay out its shareholders, the money will have been taxed three times.

INVESTOPEDIA EXPLAINS 'Dividends Received Deduction - DRD'

If a company owns less than 20% of another company, it is able to deduct 70% of the dividends it receives. If the company owns more than 20% but less than 80% of the company paying the dividend, it is able to deduct 80% of the dividend received. If it owns more than 80% of the dividend-paying company, it is allowed to deduct 100% of the dividends it receives.

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