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The relevance of depreciation allowances as a fiscal policy instrument: A hybrid approach to CCCTB?

Kunka Petkova () and Alfons Weichenrieder ()

Empirica, 2020, vol. 47, issue 3, No 6, 579-610

Abstract: Abstract A major goal of the EU Commission in the area of direct taxation is the introduction of a common consolidated corporate tax base in Europe. While hardly discussed in the literature, such a system would limit national discretion over tax depreciation. In a sample of up to 47 countries, we find that the probability of a tax reform that improves the depreciation allowances increases, if the macroeconomic situation is weak. This suggests that changes in depreciation allowances are used as a fiscal instrument for stabilization. A common consolidated tax base deprives national governments from implementing investment incentives via accelerated depreciation. This paper discusses the possible implementation of a hybrid system that combines features of formula apportionment and separate accounting. Such a hybrid system may substantially mitigate transfer pricing problems and other tax planning issues, whilst preserving national discretion over depreciation allowances.

Keywords: CCCTB; Corporate taxation; Investment incentives; Macro fiscal policy (search for similar items in EconPapers)
JEL-codes: H2 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10663-019-09441-w

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