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Università Bocconi A.A. 2005-2006

Università Bocconi A.A. 2005-2006. Comparative public economics Giampaolo Arachi. Corporate income tax reform: alternative proposals. Cash flow tax ACE CBIT ACE vs. CBIT Dividend taxation and corporate governance References:

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Università Bocconi A.A. 2005-2006

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  1. Università Bocconi A.A. 2005-2006 Comparative public economics Giampaolo Arachi

  2. Corporate income tax reform: alternative proposals • Cash flow tax • ACE • CBIT • ACE vs. CBIT • Dividend taxation and corporate governance • References: • S. Bond “Levelling up or levelling down? Some reflections on the ACE and CBIT proposals and the future of the corporate tax base” in S. Cnossen (ed.) Taxing capital income in the European Union, OUP, 2000 • C. Schutte, P. Shome, Cash-Flow Tax in P. Shome (ed.) Tax Policy Handbook, IMF, 1995

  3. Corporate income tax reform: alternative proposals • Cash flow tax (Meade 1978) • Allowance for corporate equity (ACE) (I.F.S. 1991) • Comprehensive income business tax (CBIT) (U.S. Treasury 1992)

  4. Cash flow tax • R-base: sales – purchases of real goods and services • RF-base: sales – purchases + (borrowing + interest received) – (interest paid + debt repaid) • S base: dividends paid + purchases of shares – issues of new shares • RF = S + TAX

  5. Cash flow tax shortcomings • Transition • Smaller tax rate? • Procyclical tax • Tax avoidance • Renegotiation of tax treaties • No tax on foreign investment

  6. Allowance for corporate equity • Allow the cost of equity finance to be deductible against corporation tax in the same way that interest payments are deductible for investments financed by debt • Cost of equity finance = • interest that could have been earned if the funds had been invested elsewhere • x • shareholders’ funds (cumulate past injections of new equity and past retentions of profits)

  7. Comprehensive income business tax (CBIT) • Abolition of interest deductibility

  8. ACE vs CBIT

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