A Destination-Based Allowance for Corporate Equity

IMF Working Papers, November 8, 2018

Source details

Canonical URL

A Destination-Based Allowance for Corporate Equity

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Shafik Hebous, Alexander D Klemm
• Published: November 8, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484381908.001

Overview

• Authors: Shafik Hebous, Alexander D Klemm
• Date: November 8, 2018
• Purpose: Studies destination-based forms of efficient corporate taxes, focusing on the Destination-Based Allowance for Corporate Equity (DBACE) and Allowance for Corporate Capital (DBACC).
• Context: Follows renewed academic and policy interest in destination-based profit taxation, particularly the destination-based cash flow tax (DBCFT).

Key findings

• The paper analyzes DBACE and DBACC as destination-based tax designs and describes the adjustments required to convert origin-based taxes into destination-based versions.
• Both the DBACC and DBACE reduce profit shifting and tax competition, but neither can fully eliminate them.
• The DBACE is more sensitive to profit shifting and tax competition than the DBACC.
• Given the potential major political cost of switching from an origin to a destination-based tax system, the paper concludes that the advantages of the DBCFT are likely to outweigh the transitional advantages of the DBACE/DBACC.

Adjustments required (as described)

• Transforming origin-based taxes into destination-based DBACE/DBACC requires:
  • Border adjustments (as under a DBCFT).
  • Additional adjustments to capital and equity beyond those border adjustments.

Policy implications and comparative assessment

• DBACE and DBACC offer improvements in reducing profit shifting and tax competition relative to origin-based designs, but:
  • They cannot fully eliminate profit shifting or tax competition.
  • DBACE is more sensitive than DBACC, implying different vulnerability profiles.
• Transition considerations:
  • Potential major political costs associated with switching to a destination-based tax system.
  • Overall assessment favors the DBCFT when weighing its advantages against the transitional advantages of DBACE/DBACC.

Subject areas and keywords

• Subject: Allowance for corporate equity, Corporate income tax, Discount rates, Financial institutions, Financial services, Revenue administration, Stocks, Taxes, Value-added tax
• Keywords: ACC, ACE, Allowance for corporate equity, B. profit shifting, based allowance, border tax, capital stock, competition policy tool, copyright Page, Corporate income tax, depreciation rate, Destination-based allowance, Destination-Based Taxation, Discount rates, E. exchange rate, Global, interest rate, interest receipt, investment goods, notional interest rate, rate of return, Stocks, tax competition, tax saving, upfront tax cost, Value-added tax, WP

Content in this bundle

• A Destination-Based Allowance for Corporate Equity, WP/18/239, November 2018
  • A Destination-Based Allowance for Corporate Equity, WP/18/239, November 2018 (Markdown version)
  • A Destination-Based Allowance for Corporate Equity, WP/18/239, November 2018 (PDF)