## A Destination-Based Allowance for Corporate Equity

_IMF Working Papers, November 8, 2018_

## Source details

**Canonical URL:** [A Destination-Based Allowance for Corporate Equity](https://www.imf.org/en/publications/wp/issues/2018/11/08/a-destination-based-allowance-for-corporate-equity-46314)

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

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### 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

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## Content in this bundle

- **A Destination-Based Allowance for Corporate Equity, WP/18/239, November 2018**
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_Source: https://www.imf.org/en/publications/wp/issues/2018/11/08/a-destination-based-allowance-for-corporate-equity-46314_