Pipeline Theory


DEFINITION of 'Pipeline Theory'

A notion that an investment firm that passes all capital gains, interest and dividends on to its customers/shareholders shouldn't be levied at the corporate level like most regular companies are.

Also referred to as "conduit theory".

BREAKING DOWN 'Pipeline Theory'

According to pipeline theory, the investment firm passes income directly to the investors, who are then taxed as individuals. This means that investors are taxed once on the income, whereas in regular companies investors are taxed twice: when the company reports income (at the corporate level) and when dividends are received (as individual income). Pipeline theory would apply to mutual fund companies and real estate investment trusts (REITs).

  1. Investment Vehicle

    A product used by investors with the intention of having positive ...
  2. Corporate Tax

    A levy placed on the profit of a firm, with different rates used ...
  3. Investment Company

    A corporation or trust engaged in the business of investing the ...
  4. Pipeline

    1) An investment company whose purpose is to collect investment ...
  5. Income Tax

    A tax that governments impose on financial income generated by ...
  6. Conduit Theory

    A theory stating that an investment firm that passes all capital ...
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