What does "double taxation" refer to in corporate tax?

Double taxation in corporate tax refers specifically to the taxation of corporate profits at both the corporate level and the individual level. When a corporation earns profits, it must pay corporate income tax on those earnings. After the corporation distributes dividends to shareholders, those dividends are also taxed again as personal income when received by the shareholders. This results in the same profits being taxed twice: once when the corporation pays taxes on its earnings, and again when shareholders pay taxes on the dividends they receive.

Understanding this concept is crucial for grasping how corporate taxation affects both the company and its investors, as it highlights an often-cited disadvantage of the corporate form of organization when compared to pass-through entities, where income is taxed only at the individual level.