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Allowance for shareholder equity: implementing a neutral corporate income tax in the European Union

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  • Knirsch, Deborah
  • Niemann, Rainer
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    Abstract

    This paper proposes the introduction of a consumption-based corporate income tax in the European Union. Our proposal would guarantee neutrality regarding investment decisions and at the same time increase cost-efficiency. The proposal is based on the S-base cash flow tax, where transactions within the corporate sector are not at all taxable and only transactions be-tween shareholders and corporations are subject to tax. In contrast to existing S-base cash flow tax systems, tax deductibility of investments is deferred. Rather, the acquisition costs and capital endowments are compounded at the capital market rate and are set off against fu-ture capital gains. Dividends and withdrawals are fully taxable at the shareholder level. Be-cause of the similarities to the Allowance for Corporate Equity (ACE) tax our proposal is called Allowance for Shareholder Equity (ASE tax). The ASE tax exhibits the same neutrality properties as the traditional cash flow tax. More-over, the compounded inter-temporal credit method ensures that it is neutral with respect to the decision between domestic and foreign investment. To increase acceptance of the ASE tax, current taxpayers' documentation requirements will be reduced rather than extended. Our proposal is shaped in a way that it could be realized in a single EU country or in all member states of the EU. --

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    Bibliographic Info

    Paper provided by arqus - Arbeitskreis Quantitative Steuerlehre in its series arqus Discussion Papers in Quantitative Tax Research with number 34.

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    Date of creation: 2007
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    Handle: RePEc:zbw:arqudp:34

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    1. Alan Auerbach & Michael P Devereux & Helen Simpson, 2007. "Taxing corporate income," Working Papers 0705, Oxford University Centre for Business Taxation.
    2. Robin Boadway & Neil Bruce, 1982. "A General Proposition on the Design of a Neutral Business Tax," Working Papers 461, Queen's University, Department of Economics.
    3. Garnaut, Ross & Clunies-Ross, Anthony, 1983. "Taxation of Mineral Rents," OUP Catalogue, Oxford University Press, edition 1, number 9780198284543.
    4. Johannes Becker & Clemens Fuest, 2005. "Does Germany collect revenue from taxing the normal return to capital?," Fiscal Studies, Institute for Fiscal Studies, vol. 26(4), pages 491-511, December.
    5. Stefan Homburg, 1999. "Competition and Co-ordination in International Capital Income Taxation," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(1), pages 1-17, March.
    6. Michael Keen & John King, 2002. "The Croatian profit tax: an ACE in practice," Fiscal Studies, Institute for Fiscal Studies, vol. 23(3), pages 401-418, September.
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