Explanation

Double taxation refers to the situation where corporate profits are taxed twice:

1. First taxation: At the corporate level when the corporation pays taxes on its profits (corporate income tax)
2. Second taxation: At the shareholder level when shareholders pay taxes on dividends received (dividend income tax)

Why Option A is correct:

• Shareholders receive dividends from after-tax corporate profits
• These dividends are then taxed again as personal income for the shareholders
• This creates the "double taxation" effect

Why Option B is incorrect:

• Corporations don't pay taxes on distributions to shareholders
• Distributions (dividends) are paid from after-tax profits
• The corporation has already paid taxes on these profits before distribution

Why Option C is incorrect:

• Gains earned from equity investment (capital gains) are taxed differently
• Capital gains occur when shareholders sell their shares at a profit
• This is not part of the classic "double taxation" concept which specifically refers to dividends

Key Concept: Double taxation is a characteristic of the classical corporate tax system where corporate income is taxed at the corporate level and then again at the shareholder level when distributed as dividends.