A Destination-Based Allowance for Corporate Equity

27 Pages Posted: 21 Feb 2019

See all articles by Shafik Hebous

Shafik Hebous

International Monetary Fund

Alexander Klemm

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: 2018

Abstract

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 sensitive 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.

Keywords: destination-based taxation, ACE, ACC

JEL Classification: H210, H250

Suggested Citation

Hebous, Shafik and Klemm, Alexander, A Destination-Based Allowance for Corporate Equity (2018). CESifo Working Paper No. 7363, Available at SSRN: https://ssrn.com/abstract=3338691

Shafik Hebous (Contact Author)

International Monetary Fund ( email )

Washington, DC
United States

Alexander Klemm

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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