The Comprehensive Business Income Tax System: A Proposal for Ultimate Neutrality between Debt and New Equity Issues?

摘要

The majority of experts agree that taxes are distortionary in nature. This is relatively true for all of the different groups of taxes, but for the corporate taxes is exceptionally obvious. The existence of corporate taxes can affect the company’s behavior in a number of ways and one of them is the distortion of choice of the sources of finance. As it is known, companies usually face 2 different financial alternatives to cover their investment opportunities: debt and equity (new equity issues or alternatively, retained earnings). According to the principles of corporate taxation, since interest payments are in fact tax deductible from the corporate income tax base, the debt source of finance is commonly considered as tax preferred as compared to the equity source of finance. Similarly, retained earnings are more preferred to new equities since capital gains are usually taxed upon realization or eventually exempted from taxation when reinvested. The theory suggests many varieties of corporate tax systems that sustain relative capacities to offset the excessive burden on the external equity supported investments and thus, eliminate the debt-equity related distortions.From the wider literature offer, we chose to examine the comprehensive business income tax system (CBIT), a proposal of the US Treasury Department and compare it with the basic “classical” approach in corporate taxation. The intention is to explore its properties from the view of neutrality and the allocation criteria, for which purpose the basic methodology of EMTR is additionally modified and extended. We hope to prove that this corporate system has justified its reputation in the sphere of our interest.