Let's say a company with a market cap around 100 millions USD manages to make this year around 6 millions USD in "profit". Let's say at the end of the year there are one million shares, each one valued at 106 USD.

Option A: company declares the 6 millions profit, pays about 2 millions in taxes (assuming rate = 33%) and pays 4 millions to shareholders in dividends. (In most countries, this 4 million will also be taxed as income to shareholders.)

Option B: company buys 6 millions USD / 100 (average price) ~= 60 000 of its own shares and cancels them. Assuming the company will be able to turn in the same 6 millions USD profit next year and assuming a constant earning per share, the new 940 000 shares should be valued at 106.38 USD.

If I understand correctly what you and ATinNM are telling me zero taxes are paid by company in option B.

The shareholder in option A will pay near or no capital gain if he sells his share (initially bought at the beginning of the year) after the dividend, and in option B he will pay capital gain tax.

From the state point of view, seems to be close, a more accurate model (real taxation rates, interest rates, company valuation model taking into account profit taxes) would be needed.

Any reference?