70) Thus, when the Shell stock went from trading cum dividend to ex dividend, it also went from trading cum withholding tax liability to trading ex withholding tax liability.
72) When the Shell ADRs went from trading cum dividend to ex dividend, their price dropped not by the gross dividend, but by the net dividend.
If such taxpayers determined the market price of Shell stock cum dividend in 1992, the dividend would have been worth its gross amount (not its net amount).
71) That is to say, if there was only going to be one dividend payment, perhaps because the payor plans to switch from dividends that are subject to the withholding tax to redemptions that are not, the cum dividend price will be lower in the second case than the first by the amount of tax to be withheld on the one remaining dividend payment.
73) Several commentators have argued that what made the dividend-stripping transactions attractive to Compaq was that the cum dividend price of the Shell stock was already reduced by the value of the Dutch withholding tax.
If the tax had no impact so that the stock traded cum dividend at a price that reflected the gross dividend, then there would be no negative implicit tax.
115) If the market is liquid and deep with many trades, the negative implicit tax is the excess of the gross dividend over the stock price drop when the stock shifts from trading cum dividend to ex dividend.
A short arbitrageur is someone who sells shares cum dividend and buys them back ex dividend.
For either buyers or sellers, they can trade shares cum dividend or ex dividend.
For both taxable and nontaxable distributions, if the expected return is greater than 2c/(1-c), then institutions will buy cum dividend and sell ex dividend.