You are correct that they are usually taxed like capital gains (up to 23.8% currently), but stock buybacks allow deferment of these taxes, which is usually better. If you hold the stock until you die and don't reach estate tax levels, then the stock gets passed on essentially tax free, making stock buyback even better.
With dividends, you pay the tax immediately/that year.
With capital gains, you don't pay until you sell.
If one looks long-term enough, you could also sell when you are in a lower income tax bracket or the government has lowered capital gains for random political reasons.
I'm Canadian, and we have something similar. But it only applies to corporations that are resident in Canada (where Canadian corporate taxes are paid on retained earnings?). I think the intent is to recognize the tax already paid on earnings, not necessarily to make it like taxable like capital gains... but it's all a wash.
It seems that qualified dividends in U.S. are limited in similar ways.
My confusion makes sense in retrospect: I have generally held stock from U.S. markets, so I don't often benefit from the credit. I believe dividends were always counted directly as taxable income.
So... supposing that you're in the U.S. and your stock isn't U.S.-based, wouldn't buybacks always be more tax favorable?
