This could work, but it would have to be reconciled with the existing basis step-up at death, which is a key part of our intergenerational personal tax system. If you only taxed people when there is a dividend or salary payment, a savvy CEO of a private company could follow the tax advice of "borrow, buy, die". Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. Then when the CEO dies, the loans are repaid out of the estate. And the basis in the remaining shares is stepped up when passed to heirs.
So while you can get rid of corporate taxation, the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime.
> Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral.
This would mean that they essentially pay a "wealth tax" (interest on all their borrowed net worth, with probably a decent premium for the risk) to the bank.
> Then when the CEO dies, the loans are repaid out of the estate.
And at this point, income is raised out of the company and would become taxable. At least where I live, the estate of a natural person pays taxes for their income like a living natural person.
> the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime
But they'd still pay the taxes eventually. I don't see this as a huge issue. If the society can't wait to get their the taxes (IMHO a nation state should plan for timeframes longer than a single lifetime), they can use the same trick to get a loan from the bank with the future tax income as collateral.
We could even invent borrowing mechanisms where governments could get money today in exchange for a binding agreement to make future payments against those future tax revenues. We could call these binding agreements a government bond.
So while you can get rid of corporate taxation, the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime.