Final answer:
Corporate entities are taxed on profits earned, which is known as corporate taxes. When these profits are distributed to investors as dividends, the investors must pay personal income taxes on this income, exemplifying double taxation.
Step-by-step explanation:
The question poses a scenario about the tax implications for a corporate enterprise and its investors. In this scenario, the corporate entity pays corporate taxes on its profits, and then when these profits are distributed as dividends to investors, the investors are required to pay personal income taxes on this income. The scenario highlights the concept of double taxation, where income is taxed at both the corporate level when profits are earned, and again at the shareholder level when profits are distributed as dividends.
Corporate income taxes are a significant source of revenue for governments and are imposed on companies based on the profits they earn. These taxes are considered separate from other forms of taxation that a corporation might be subject to, such as payroll taxes, excise taxes, property taxes, etc. However, when profits are distributed as dividends, the shareholders, as the recipients of these dividends, must also declare this income and pay applicable taxes on their personal tax returns.