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The Croatian profit tax: an ACE in practice

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Author Info

  • Michael Keen
  • John King

Abstract

This paper discusses the experience of Croatia in applying, from 1994 to the beginning of 2001, a profit tax that was charged only on equity income in excess of an imputed normal return — and was thus, in essence, an ‘Allowance for Corporate Equity’ (ACE) scheme of the kind advocated by the IFS Capital Taxes Group and others. The computation of taxable profit under this system is summarised, and the theoretical attractions of the system are described. The paper then discusses a variety of criticisms that were made of the system in Croatia, including an alleged bias in favour of capital-intensive enterprises (and, in particular, large State-owned enterprises with overvalued assets), international complications, the complexity of the computations of taxable profit, the possibility that the rate of protective interest was set at an inappropriate level, and excessive revenue cost.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 23 (2002)
Issue (Month): 3 (September)
Pages: 401-418

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Handle: RePEc:ifs:fistud:v:23:y:2002:i:3:p:401-418

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Cited by:
  1. Michael P. Devereux & Peter Birch Sørensen, 2006. "The Corporate Income Tax: international trends and options for fundamental reform," European Economy - Economic Papers 264, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," EPRU Working Paper Series 06-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  3. Klapper, Leora & Tzioumis, Konstantinos, 2008. "Taxation and capital structure : evidence from a transition economy," Policy Research Working Paper Series 4753, The World Bank.
  4. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," CESifo Working Paper Series 1793, CESifo Group Munich.
  5. Sijbren Cnossen, 2002. "Tax Policy in the European Union: A Review of Issues and Options," CESifo Working Paper Series 758, CESifo Group Munich.
  6. Paolo Panteghini, 2005. "S-Based Taxation under Default Risk," CESifo Working Paper Series 1496, CESifo Group Munich.
  7. Michael P Devereux, 2007. "Taxes in the EU New Member States and the Location of Capital and Profit," Working Papers 0703, Oxford University Centre for Business Taxation.
  8. Doina Maria Radulescu & Michael Stimmelmayr, 2006. "ACE vs. CBIT: Which is Better for Investment and Welfare?," CESifo Working Paper Series 1850, CESifo Group Munich.
  9. repec:ays:ispwps:paper0716 is not listed on IDEAS
  10. Peter Sørensen, 2005. "Neutral Taxation of Shareholder Income," International Tax and Public Finance, Springer, vol. 12(6), pages 777-801, November.
  11. Lourdes Jerez Barroso, 2011. "Base imponible y neutralidad del Impuesto de Sociedades: alternativas y experiencias," Hacienda Pública Española, IEF, vol. 197(2), pages 113-146, June.
  12. repec:ays:ispwps:paper0715 is not listed on IDEAS
  13. Alexander Klemm, 2006. "Allowances for Corporate Equity in Practice," IMF Working Papers 06/259, International Monetary Fund.
  14. Ruud de Mooij & Michael P. Devereux, 2009. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Studies 0028, Directorate General Taxation and Customs Union, European Commission.
  15. repec:ays:ispwps:paper0635 is not listed on IDEAS
  16. Ruud de Mooij & Michael P. Devereux, 2009. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Papers 17, Directorate General Taxation and Customs Union, European Commission.
  17. Knirsch, Deborah, 2005. "Lohnt sich eine detaillierte Steuerplanung für Unternehmen? Zur Ressourcenallokation bei der Investitionsplanung," arqus Discussion Papers in Quantitative Tax Research 8, arqus - Arbeitskreis Quantitative Steuerlehre.

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