IMF Working Papers

A Destination-Based Allowance for Corporate Equity

By Shafik Hebous, Alexander D Klemm

November 8, 2018

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Shafik Hebous, and Alexander D Klemm. A Destination-Based Allowance for Corporate Equity, (USA: International Monetary Fund, 2018) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Following renewed academic and policy interest in the destination-based principle for taxing profits—particularly through a destination-based cash flow tax (DBCFT)—this paper studies other forms of efficient destination-based taxes. Specifically, it analyzes the Destination-Based Allowance for Corporate Equity (DBACE) and Allowance for Corporate Capital (DBACC). It describes adjustments that are required to turn an origin into a destination-based versions of these taxes. These include adjustments to capital and equity, which are additional to the border adjustments needed under a DBCFT. The paper finds that the DBACC and DBACE reduce profit shifting and tax competition, but cannot fully eliminate them, with the DBACE more sensitve than the DBACC. Overall, given the potential major political cost of switching from an origin to a destination-based tax system, we conclude that advantages of the DBCFT are likely to outweigh the transitional advantages of the DBACE/DBACC.

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

Publication Details

  • Pages:

    26

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2018/239

  • Stock No:

    WPIEA2018239

  • ISBN:

    9781484381908

  • ISSN:

    1018-5941

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