## wp18239 — Chapter: 1. Country Experiences with Rent Taxes

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### I. Introduction and motivation
- Destination-based taxation of business profits has gained prominence following the 2016 U.S. Blueprint proposing a destination-based cash-flow tax (DBCFT).
- The paper studies destination-based variants of neutral, rent-only corporate tax bases:
  - CFT: cash-flow tax (including R-Base, R+F-Base, S-Base).
  - ACE/C: allowance for corporate equity (ACE) and allowance for corporate capital (ACC). Shorthand DBACE/C used for destination-based versions.
- Conceptual advantage of destination-base (DBCFT, DBACE, DBACC): removal or strong reduction of profit-shifting incentives through border adjustments (exports untaxed, imports non-deductible or taxed at border).

### II. Background: neutral taxes (ACE/C)
- ACE base defined as total book value of equity (often implemented as incremental new equity initially).
- Notional interest rate î:
  - Theoretically should equal the risk-free rate adjusted for bankruptcy/loss risk.
  - In practice approximated by yields on long-term government bonds.
- Neutrality properties:
  - CFT and ACE/C are efficient (tax only economic rent) and neutral with respect to financing choices in domestic setting if the notional rate matches required conditions.
  - If î equals debt interest i, financial structure has no impact on taxes.
  - ACE is neutral to depreciation allowances provided notional rate matches discount rate.
  - ACC replaces actual debt interest with the notional rate, making debt-equity neutrality automatic.

### III. Defining destination-based allowances (DBACE and DBACC)
- DBCFT recap:
  - Tax base = local sales (sales net of exports) less local costs and local investment.
  - Two equivalent treatments of imports under DBCFT:
    - ND: Non-deductibility — imported goods not deductible.
    - BT: Border taxes — imports taxed on entry but deductible at tax-inclusive price.
- DBACE specifics:
  - Sales and intermediate costs restricted to local sales/intermediates.
  - Investment/depreciation: ACE uses depreciation (stock) rather than expensing (flow).
  - Two implementation options for imported investment goods:
    - ND: restrict depreciation to local investment goods; domestic equity must exclude imported capital and foreign investment; repatriated foreign profits boost equity.
    - BT: allow depreciation of imported capital goods with tax capitalized into import price and depreciated; imported capital stock evolves with tax-inclusive cost.
  - Present-value equivalence: DBACE(ND) and DBACE(BT) yield same present value of tax revenues if notional interest rate matches discount rate.
  - Under DBACE, foreign investment must be excluded from domestic equity; repatriation treated as equity-boosting.
- DBACC:
  - Derived from DBACE by replacing actual debt interest with notional rate; debt-equity neutrality holds automatically.

### IV. Properties and implications of destination-based allowances
- Domestic neutrality
  - DBACE and DBACC retain ACE/C neutrality to investment and depreciation if notional rate matches discount rate.
  - DBACC is more robust than DBACE to firm financing choices because it is neutral to debt-equity ratio.
- Profit shifting
  - Transfer pricing:
    - DBCFT eliminates transfer-price profit shifting; DBACE/C largely mirrors this protection for intermediate goods.
    - Under BT implementation for imported capital goods, minor transfer-price incentives can remain if î ≠ discount rate.
  - Thin capitalization:
    - DBCFT and DBACC prevent profit shifting via debt.
    - DBACE leaves scope for profit shifting via interest deductions if î differs from actual debt rates.
- Strategic interactions
  - Unilateral adoption of destination-based taxes produces large spillovers; other countries face incentives to alter tax rates or to adopt DBCFT.
  - Global DBCFT adoption should remove strategic interactions over tax rates; under DBACE/C, if î is set too low relative to world required return, capital remains taxed at the margin and investment may be discouraged.
  - Notional interest rate becomes an additional instrument countries could compete over.
- Revenue
  - In present value, DBACE/C and DBCFT revenues are identical if notional rate matches discount rate and (for DBACE) debt interest; but annual collections can differ substantially.
  - Comparative properties:
    - DBACE/C(ND) raises more revenue in years of exceptionally high investment.
    - DBACE/C(ND) is a more stable revenue source (capital stock adjusts slowly relative to investment flows).
    - DBACE/C(ND) raises greater revenues initially if implemented on an incremental base (counting only capital/equity acquired after implementation).
    - DBACE/C(BT) would raise even more initially due to border-collected tax on imports then depreciated.
  - Deviations of î from relevant discount rates cause PV revenue differences; government discount rate vs private discount rate matter for revenue equality.
  - Under DBACE, revenues depend on debt-equity ratio changes; exchange rate moves affecting foreign-currency debt can cause sudden changes.
  - Empirical/other findings cited:
    - Hebous, Klemm, and Stausholm (2018): average DBCFT revenues similar to current CIT on panel of countries, but trade-surplus countries tend to lose revenue under DBCFT.
    - Patel and McClelland (2017): in U.S. data, domestic cash-flow tax base similar to existing CIT base; border adjustments imply significantly higher DBCFT revenues for U.S. (trade-deficit country).
- Exchange rate and trade
  - Theoretical neutrality: DBCFT should not affect real trade when relative prices adjust (Auerbach (2017)).
  - DBACE/C similar, except where implementation differences on imported investment goods create incentives if î ≠ discount rate.
- Incidence
  - DBCFT incidence: on consumption financed out of non-wage income.
  - Under DBACE/C, if î diverges from world required return, capital stock changes shift some incidence onto labor (labor bears burden if î too low; receives subsidy if î too high). Overall, tax-burden on labor should be smaller than in current origin-based systems where î effectively zero.
- Sector-specific issues
  - Financial sector:
    - DBCFT disregards interest flows; financial sector rents on corporate lending effectively taxed via borrowers’ interest rates.
    - DBACE retains interest deductibility and taxes interest receipts symmetrically.
    - DBACC partially taxes notional interest on debt/equity.
    - Lending to households: DBCFT may leave household-lending rents untaxed; DBACE addresses this by taxing interest receipts.
  - Extractive industries:
    - Location-specific resource rents are attractive to tax at origin; destination-based systems require supplementary origin-based measures (royalties, special taxes, production-sharing, auctions) to capture location rents.
    - If resources are domestically owned, destination taxes still raise revenue via current-account adjustment; if foreign-owned, revenue shifts to income account reducing domestic receipts.

### V. Conclusions — key policy-relevant findings and tradeoffs
- Implementation adjustments:
  - Implementing DBACE/C requires similar technical adjustments as DBCFT plus one additional rule: treat investment abroad as reducing domestic corporate equity and repatriated profits as boosting it.
- Tradeoffs and comparative conclusions:
  - DBACC advantages over DBACE are larger in destination-based context: only DBACC removes profit-shifting incentives through debt structure.
  - All destination-based options (DBACE, DBACC, DBCFT) are more robust to profit shifting than origin-based taxes, but:
    - DBCFT and DBACC with ND remove all profit-shifting opportunities.
    - DBACE is least robust, particularly with BT implementation for imported investment goods.
  - Revenue characteristics:
    - DBACE/C likely to produce initially higher and less volatile revenues than DBCFT (incremental base and depreciation vs expensing).
  - Administrative and transition considerations:
    - DBACE/C is closer to current systems, potentially easing transition (maintaining depreciation rules, easier handling of existing debt, more familiar treatment of financial sector).
    - However, maintaining depreciation schemes is not necessarily a strong advantage; expensing simplifies rules and has precedents.
    - DBACC may require transitional arrangements for existing debt because firms assumed full interest deductibility.
  - Strategic interactions and tax competition:
    - DBACE/C reduces but does not eliminate strategic interactions; notional rate î can become an instrument of competition.
    - DBCFT would eliminate strategic interactions over tax rates if universally adopted.
- Policy implication and pathway:
  - If agreement on destination base is achievable, moving directly to a CFT (DBCFT) would be the most efficient and robust option.
  - If DBACE is politically or administratively easier to agree on, it is still more efficient than current systems and could serve as a transitional step toward DBCFT by gradually moving toward expensing and convergence of depreciation rules.
  - As long as the destination base is internationally agreed, countries could choose different rent taxes (CFT, ACE, ACC), yielding less efficiency than global CFT but substantially greater robustness to tax competition than current origin-based regimes.

### Appendix 1 — Country Experiences with Rent Taxes: overview and empirical evidence
- No real-world experience with a DBCFT or DBACE/C.
- The 2017 US tax reform has some weak destination-based elements.
- Consumption taxes (VAT, sales taxes) are destination-based.
- A few countries implement origin-based ACE systems: Belgium, Cyprus, Italy.
- All existing ACE systems have an incremental base, except Belgium which had the total book value of equity until 2017 but switched to an incremental base starting in 2018.
- Rates are linked to yields on government bonds in several countries.
- Austria, Croatia, Latvia, and Portugal abolished their ACE regimes.

Empirical evidence on ACE (summary):
- General patterns:
  - an ACE reduces corporate leverage (studies: Hebous and Ruf, 2017; Petutschnig and Rünger, 2017; Princen, 2012), including of banks (Schepens, 2016).
  - mixed evidence on effects of an ACE on investment (Hebous and Ruf, 2017).
  - appropriate anti-tax-avoidance measures are important when adopting ACE (Hebous and Ruf, 2017; IMF, 2016).
- Selected study-level findings (as reported):
  - Hebous and Ruf (2017), Multiple ACE countries, special focus on Belgium, Administrative data (MiDi data): Debt — Negative; Investment — Zero for active investment; Positive for passive investment.
  - Klemm (2007), Brazil, Thomson Financial: Debt — No big effect; Investment — Weakly Positive.
  - Panteghini, Parisi, and Pighetti (2012), Italy, AIDA database: Debt — Negative.
  - Branzoli and Caiumi (2018), Italy, Tax return data (ISTAT): Debt — Negative.
  - Petutschnig and Rünger (2017), Austria, AMADUES data: Debt — Negative.
  - Princen (2012), Belgium, AMADUES data: Debt — Negative.
  - Van Campenhout and Van Caneghem (2013), Belgium, KeFiK survey on SME financing 2008: Debt — No impact.
  - De Mooij, Hebous, and Hrdinkova (2018), Belgium, BankScope (study on banks): Negative.
  - Schepens (2016), Belgium, BankScope (study on banks): Negative.
  - Martin-Flores and Moussu (forthcoming), Italy, Banks: Negative.
  - Célérier, Kick, and Ongena (2017), Belgium, Bank and loans data: Debt — Negative; Investment/supply of credit — Positive effect on the supply of credit.

Experiences with ACE systems (selected country facts and exact parameters):
- Austria, 2000-2004
  - Base: Incremental book value of equity.
  - Rate: Average secondary market government bond rate plus 0.8 p.p.
  - Notes: Notional return taxed at a reduced rate of 25 instead of 34%.
- Belgium, Since 2006
  - Base: Until 2017: Full book value of equity. Since 2018: Incremental, base equal to 1/5 of the increase over 5 years.
  - Rate: Average monthly government bond rate of 2 years ago. Rate cap of 6.5%; change limited to 1 p.p. per year. SME rate 0.5 p.p. higher.
  - Notes: Since 2013 no carry forward of unused allowances, tax on distributed dividends of large firms introduced.
- Brazil, Since 1996
  - Base: Book value of equity; only for distributions (closed companies: also credits to owners).
  - Rate: Rate applicable to long-term loans.
  - Notes: Up to the level of the notional return, dividends can be paid as “interest on equity.” This is deductible for CIT and subject to the usual tax on interest.
- Croatia, 1994-2000
  - Base: Book value of equity.
  - Rate: 5% plus industrial goods inflation if positive.
- Italy, 1997-2003
  - Base: Incremental book value of equity. 2000: 120% of new equity. 2001: 140%. From 2002: again 100%.
  - Rate: 1997-2000: 7%, 2001-2003: 6%.
  - Notes: Notional return taxed at a reduced rate of 19 instead of 37% (34% in 2003). Before 2001: 27% minimum average tax rate.
- Italy, Since 2012†
  - Base: Incremental equity (over 2010 base).
  - Rate: 2011-2013: 3%; 2014: 4%; 2015: 4.5%; 2016: 4.75%. From 2017: average public debt rate plus risk factor set by Finance Minister.
  - Notes: Excluding current year profits. May not exceed the company's equity at the end of the given fiscal year. †Italy’s draft budget for 2019 proposed abolishing the ACE.
- Latvia, 2009-2014
  - Base: Retained earnings accumulated since 2008.
  - Rate: Weighted average interest rate on loans to nonfinancial enterprises. 5.05% in 2010, 4.37% in 2011.
- Liechtenstein, Since 2011
  - Base: Modified equity.
  - Rate: Based on market developments (currently: 4%).
- Portugal, Since 2008
  - Base: Incremental equity of SMEs; from 2014: limited to €2,000,000.
  - Rate: 2008-2013: 3%; 2014-2016: 5%. From 2017: 7%.
- Cyprus, Since 2015
  - Base: Incremental equity: issued share capital, fully-paid share premium.
  - Rate: 10-year Cypriot government bond yield, or if higher, yield of country where equity is invested; plus 3 p.p.
- Turkey, Since July 2015
  - Base: Incremental cash capital.
  - Rate: 50% of weighted average bank loan interest rate.
  - Notes: Not for: firms with high passive income / financial assets; subsidiaries or participations.
- Malta, Since 2018
  - Base: Share capital, including: share premium, interest-free debt, retained earnings and contribution reserves.
  - Rate: Yield on 20-year government bonds plus 5 p.p.
  - Notes: Limited to 90% of taxable income. Excess can be carried forward.

R-base Cash-Flow Taxes and other notes:
- Country experiences with R-base CFTs tend to be sector specific or applied to small businesses.
- Hungary applied a CFT to SMEs as a simplified small company system.
- Mexico’s IETU had R-base cash flow features as a minimum tax under the standard tax regime.
- Estonia, Macedonia, and Georgia employ forms of S-Base cash flow taxes.

*Source: IMF Working Paper (wp18239) — Chapter: 1. Country Experiences with Rent Taxes*

### References .............................................................................................................

### wp18239 - References

### References
- References ......................................................................................................................................................................... 24

### Tables
- 1. Acronyms and Tax Systems ...................................................................................................................................... 5
- A1. Empirical Evidence on the ACE .......................................................................................................................... 21
- A2. Experiences with ACE Systems .......................................................................................................................... 22

### Figures
- 1. The Marginal Return to Capital Before and After Tax ................................................................................. 13

### Appendixes
- Appendixes

*Source: wp18239 - References*

### 1. Country Experiences with Rent Taxes .................................................................................

### 1. Country Experiences with Rent Taxes

### I. Introduction and motivation
- Destination-based taxation of business profits (taxing profits where final consumption occurs) has gained prominence following the 2016 U.S. Blueprint proposing a destination-based cash-flow tax (DBCFT).
- The paper studies destination-based variants of neutral, rent-only corporate tax bases:
  - CFT: cash-flow tax (including R-Base, R+F-Base, S-Base).
  - ACE/C: allowance for corporate equity (ACE) and allowance for corporate capital (ACC). Shorthand DBACE/C used for destination-based versions.
- Key conceptual advantage of destination-base (DBCFT, DBACE, DBACC): removal or strong reduction of profit-shifting incentives through border adjustments (exports untaxed, imports non-deductible or taxed at border).

### II. Background: neutral taxes (ACE/C)
- ACE base: total book value of equity (often implemented as incremental new equity initially).
- Notional interest rate î:
  - Theoretically should equal the risk-free rate adjusted for bankruptcy/loss risk.
  - In practice approximated by yields on long-term government bonds.
- Neutrality properties:
  - Both CFT and ACE/C are efficient (tax only economic rent) and neutral with respect to financing choices in domestic setting if the notional rate matches required conditions.
  - If î equals debt interest i, financial structure has no impact on taxes (equation (5) implication).
  - ACE is neutral to depreciation allowances provided notional rate matches discount rate (equations (6) and (7)).
- ACC differs by replacing actual debt interest with the notional rate, making debt-equity neutrality automatic (equation (8)).

### III. Defining destination-based allowances (DBACE and DBACC)
- DBCFT recap:
  - Tax base = local sales (sales net of exports) less local costs and local investment (equation (9)).
  - Two equivalent treatments of imports under DBCFT:
    - ND: Non-deductibility — imported goods not deductible.
    - BT: Border taxes — imports taxed on entry but deductible at tax-inclusive price.
- DBACE specifics:
  - Sales and intermediate costs: replace total by local sales/intermediates.
  - Investment/depreciation: difference arises because ACE uses depreciation (stock) rather than expensing (flow).
  - Two implementation options for imported investment goods:
    - Non-deductibility (ND): restrict depreciation to local investment goods (equation (10) and (12)). Domestic equity must exclude imported capital and foreign investment; repatriated foreign profits boost equity (equation (11)).
    - Border tax (BT): allow depreciation of imported capital goods with tax capitalized into import price and depreciated (equation (13) and (14)). Imported capital stock evolves with tax-inclusive cost.
  - Present-value equivalence: DBACE(ND) and DBACE(BT) yield same present value of tax revenues if notional interest rate matches discount rate.
  - Under DBACE, foreign investment must be excluded from domestic equity; repatriation treated as equity-boosting.
- DBACC:
  - Derived from DBACE by replacing actual debt interest with notional rate; debt-equity neutrality holds automatically (equations (16) and (17)).

### IV. Properties and implications of destination-based allowances
- Domestic neutrality
  - DBACE and DBACC retain ACE/C neutrality to investment and depreciation if notional rate matches discount rate.
  - DBACC is more robust than DBACE to firm financing choices because it is neutral to debt-equity ratio.
- Profit shifting
  - Transfer pricing:
    - DBCFT eliminates transfer-price profit shifting; DBACE/C largely mirrors this protection for intermediate goods.
    - Under BT implementation for imported capital goods, minor transfer-price incentives can remain if î ≠ discount rate (equation (15) describes NPV effects).
  - Thin capitalization:
    - DBCFT and DBACC (no interest deductibility in DBCFT; notional interest in DBACC) prevent profit shifting via debt.
    - DBACE leaves scope for profit shifting via interest deductions if î differs from actual debt rates (illustrated by equation (18)).
- Strategic interactions
  - Unilateral adoption of destination-based taxes produces large spillovers; other countries face incentives to alter tax rates or to adopt DBCFT.
  - Global DBCFT adoption should remove strategic interactions over tax rates; under DBACE/C, if î is set too low relative to world required return, capital remains taxed at the margin and investment may be discouraged.
  - Notional interest rate becomes an additional instrument countries could compete over.
- Revenue
  - In present value, DBACE/C and DBCFT revenues are identical if notional rate matches discount rate and (for DBACE) debt interest; but annual collections can differ substantially.
  - Comparative properties (from equation (19) and discussion):
    - DBACE/C(ND) raises more revenue in years of exceptionally high investment.
    - DBACE/C(ND) is a more stable revenue source (capital stock adjusts slowly relative to investment flows).
    - DBACE/C(ND) raises greater revenues initially if implemented on an incremental base (counting only capital/equity acquired after implementation).
    - DBACE/C(BT) would raise even more initially due to border-collected tax on imports then depreciated.
  - Deviations of î from relevant discount rates cause PV revenue differences; government discount rate vs private discount rate matter for revenue equality.
  - Under DBACE, revenues depend on debt-equity ratio changes; exchange rate moves affecting foreign-currency debt can cause sudden changes.
  - Empirical/other findings cited:
    - Hebous, Klemm, and Stausholm (2018): average DBCFT revenues similar to current CIT on panel of countries, but trade-surplus countries tend to lose revenue under DBCFT.
    - Patel and McClelland (2017): in U.S. data, domestic cash-flow tax base similar to existing CIT base; border adjustments imply significantly higher DBCFT revenues for U.S. (trade-deficit country).
- Exchange rate and trade
  - Theoretical neutrality: DBCFT should not affect real trade when relative prices adjust (Auerbach (2017)).
  - DBACE/C similar, except where implementation differences on imported investment goods create incentives (non-deductibility vs BT) if î ≠ discount rate.
- Incidence
  - DBCFT incidence: on consumption financed out of non-wage income.
  - Under DBACE/C, if î diverges from world required return, capital stock changes shift some incidence onto labor (labor bears burden if î too low; receives subsidy if î too high). Overall, tax-burden on labor should be smaller than in current origin-based systems where î effectively zero.
- Sector-specific issues
  - Financial sector:
    - DBCFT disregards interest flows; financial sector rents on corporate lending effectively taxed via borrowers’ interest rates.
    - DBACE retains interest deductibility and taxes interest receipts symmetrically — politically convenient.
    - DBACC partially taxes notional interest on debt/equity.
    - Lending to households: DBCFT may leave household-lending rents untaxed; DBACE addresses this by taxing interest receipts.
  - Extractive industries:
    - Location-specific resource rents are attractive to tax at origin; destination-based systems require supplementary origin-based measures (royalties, special taxes, production-sharing, auctions) to capture location rents.
    - If resources are domestically owned, destination taxes still raise revenue via current-account adjustment; if foreign-owned, revenue shifts to income account reducing domestic receipts.

### V. Conclusions — key policy-relevant findings and tradeoffs
- Implementing DBACE/C requires similar technical adjustments as DBCFT plus one additional rule: treat investment abroad as reducing domestic corporate equity and repatriated profits as boosting it.
- Tradeoffs and comparative conclusions:
  - DBACC advantages over DBACE are larger in destination-based context: only DBACC removes profit-shifting incentives through debt structure.
  - All destination-based options (DBACE, DBACC, DBCFT) are more robust to profit shifting than origin-based taxes, but:
    - DBCFT and DBACC with ND remove all profit-shifting opportunities.
    - DBACE is least robust, particularly with BT implementation for imported investment goods.
  - Revenue characteristics:
    - DBACE/C likely to produce initially higher and less volatile revenues than DBCFT (incremental base and depreciation vs expensing).
  - Administrative and transition considerations:
    - DBACE/C is closer to current systems, potentially easing transition (maintaining depreciation rules, easier handling of existing debt, more familiar treatment of financial sector).
    - However, maintaining depreciation schemes is not necessarily a strong advantage; expensing simplifies rules and has precedents (e.g., temporary U.S./UK expensing).
    - DBACC may require transitional arrangements for existing debt because firms assumed full interest deductibility.
  - Strategic interactions and tax competition:
    - DBACE/C reduces but does not eliminate strategic interactions; notional rate î can become an instrument of competition.
    - DBCFT would eliminate strategic interactions over tax rates if universally adopted.
- Policy implication and pathway:
  - If agreement on destination base is achievable, moving directly to a CFT (DBCFT) would be the most efficient and robust option.
  - If DBACE is politically or administratively easier to agree on (e.g., due to initial revenue gains), it is still more efficient than current systems and could serve as a transitional step toward DBCFT by gradually moving toward expensing and convergence of depreciation rules.
  - As long as the destination base is internationally agreed, countries could choose different rent taxes (CFT, ACE, ACC), yielding less efficiency than global CFT but substantially greater robustness to tax competition than current origin-based regimes.

*Source: IMF Working Paper (wp18239) — Chapter: 1. Country Experiences with Rent Taxes*

### Appendix 1. Country Experiences with Rent Taxes

### Appendix 1. Country Experiences with Rent Taxes

### Overview
- No real-world experience with a DBCFT or DBACE/C.  
- The 2017 US tax reform has some weak destination-based elements (e.g., in applying lower tax rates for certain export revenues).  
- Proposal of implementing a formula apportionment system based on sales also have a destination-based nature.  
- Consumption taxes, such as VAT or sales taxes have always been on a destination basis.  
- A few countries currently implement an origin-based ACE system, including Belgium, Cyprus, and Italy.  
- All existing ACE systems have an incremental base, except Belgium which had the total book value of equity as the base until 2017 but switched to an incremental base starting in 2018.  
- Rates are linked to the yields on government bonds in several countries.  
- Austria, Croatia, Latvia, and Portugal abolished their ACE regimes.  

### Empirical Evidence on ACE (summary of Appendix Table A1)
- Overall patterns from empirical studies:
  - an ACE reduces corporate leverage (e.g., Hebous and Ruf, 2017; Petutschnig and Rünger, 2017; Princen, 2012)—including of banks (Schepens, 2016).  
  - mixed evidence on the effects of an ACE on investment (Hebous and Ruf, 2017).  
  - appropriate anti-tax-avoidance measures are important to accompany the adoption of the ACE (Hebous and Ruf, 2017; IMF, 2016).  

- Selected study-level findings (as reported):
  - Hebous and Ruf (2017), Multiple ACE countries, special focus on Belgium, Administrative data (MiDi data): Debt — Negative; Investment — Zero for active investment; Positive for passive investment.  
  - Klemm (2007), Brazil, Thomson Financial: Debt — No big effect; Investment — Weakly Positive.  
  - Panteghini, Parisi, and Pighetti (2012), Italy, AIDA database: Debt — Negative.  
  - Branzoli and Caiumi (2018), Italy, Tax return data (ISTAT): Debt — Negative.  
  - Petutschnig and Rünger (2017), Austria, AMADUES data: Debt — Negative.  
  - Princen (2012), Belgium, AMADUES data: Debt — Negative.  
  - Van Campenhout and Van Caneghem (2013), Belgium, KeFiK survey on SME financing 2008: Debt — No impact.  
  - De Mooij, Hebous, and Hrdinkova (2018), Belgium, BankScope (study on banks): Negative.  
  - Schepens (2016), Belgium, BankScope (study on banks): Negative.  
  - Martin-Flores and Moussu (forthcoming), Italy, Banks: Negative.  
  - Célérier, Kick, and Ongena (2017), Belgium, Bank and loans data: Debt — Negative; Investment/supply of credit — Positive effect on the supply of credit.

### Experiences with ACE Systems (summary of Appendix Table A2)
- Austria, 2000-2004
  - Base: Incremental book value of equity.  
  - Rate: Average secondary market government bond rate plus 0.8 p.p.  
  - Notes: Notional return taxed at a reduced rate of 25 instead of 34%.  

- Belgium, Since 2006
  - Base: Until 2017: Full book value of equity. Since 2018: Incremental, base equal to 1/5 of the increase over 5 years.  
  - Rate: Average monthly government bond rate of 2 years ago. Rate cap of 6.5%; change limited to 1 p.p. per year. SME rate 0.5 p.p. higher.  
  - Notes: Since 2013 no carry forward of unused allowances, tax on distributed dividends of large firms introduced.  

- Brazil, Since 1996
  - Base: Book value of equity; only for distributions (closed companies: also credits to owners).  
  - Rate: Rate applicable to long-term loans.  
  - Notes: Up to the level of the notional return, dividends can be paid as “interest on equity.” This is deductible for CIT and subject to the usual tax on interest.  

- Croatia, 1994-2000
  - Base: Book value of equity.  
  - Rate: 5% plus industrial goods inflation if positive.  

- Italy, 1997-2003
  - Base: Incremental book value of equity. 2000: 120% of new equity. 2001: 140%. From 2002: again 100%.  
  - Rate: 1997-2000: 7%, 2001-2003: 6%.  
  - Notes: Notional return taxed at a reduced rate of 19 instead of 37% (34% in 2003). Before 2001: 27% minimum average tax rate.  

- Italy, Since 2012†
  - Base: Incremental equity (over 2010 base).  
  - Rate: 2011-2013: 3%; 2014: 4%; 2015: 4.5%; 2016: 4.75%. From 2017: average public debt rate plus risk factor set by Finance Minister.  
  - Notes: Excluding current year profits. May not exceed the company's equity at the end of the given fiscal year. †Italy’s draft budget for 2019 proposed abolishing the ACE.  

- Latvia, 2009-2014
  - Base: Retained earnings accumulated since 2008.  
  - Rate: Weighted average interest rate on loans to nonfinancial enterprises. 5.05% in 2010, 4.37% in 2011.  

- Liechtenstein, Since 2011
  - Base: Modified equity.  
  - Rate: Based on market developments (currently: 4%).  

- Portugal, Since 2008
  - Base: Incremental equity of SMEs; from 2014: limited to €2,000,000.  
  - Rate: 2008-2013: 3%; 2014-2016: 5%. From 2017: 7%.  

- Cyprus, Since 2015
  - Base: Incremental equity: issued share capital, fully-paid share premium.  
  - Rate: 10-year Cypriot government bond yield, or if higher, yield of country where equity is invested; plus 3 p.p.  

- Turkey, Since July 2015
  - Base: Incremental cash capital.  
  - Rate: 50% of weighted average bank loan interest rate.  
  - Notes: Not for: firms with high passive income / financial assets; subsidiaries or participations.  

- Malta, Since 2018
  - Base: Share capital, including: share premium, interest-free debt, retained earnings and contribution reserves.  
  - Rate: Yield on 20-year government bonds plus 5 p.p.  
  - Notes: Limited to 90% of taxable income. Excess can be carried forward.  

### R-base Cash-Flow Taxes and Other Notes
- There are country experiences with R-base CFTs; they tend to be sector specific (e.g., natural resources) or applied only to small businesses.  
- Hungary applied a CFT to SMEs as a form of simplified small company system.  
- Mexico had a tax (named IETU) with R-base cash flow features, but it served as a minimum tax under the standard tax regime, rather than a standalone tax.  
- Estonia, Macedonia, and Georgia employ forms of S-Base cash flow taxes.  

*Source: IMF Working Paper — Appendix 1. Country Experiences with Rent Taxes (authors’ compilation).*

---


_Source: https://www.imf.org/-/media/files/publications/wp/2018/wp18239.pdf_