Translation Results Requested Through Conyac Made Public

Fundamental reform might be an option to tackle jointly the complexity and the
reduced efficiency of current corporate income tax systems. Corporations point to the
international corporate income tax rules, the accrual accounting rules, the capitalisation of
assets and the sensitivity to timing to be the main sources of corporate income tax
complexity and therefore of corporate compliance costs. Other important sources of tax
complexity are the different tax treatment between debt instruments and all other
financial instruments as equity, the existence of different types of legal forms that are
taxed differently, the tax rules with respect to business restructurings and the tax rules
with respect to the transfers of business assets. For instance, corporate tax compliance costs might be reduced by
increasing the conformity between taxable income and income used for financial
accounting purposes, by changing the tax rules less frequently and by keeping the rules as
simple as possible. Because the normal return on equity and the interest payments are not effectively taxed
at the corporate level, a corporate cash-flow tax does not distort the choice between debt and
equity and between newly issued equity and retained earnings at the corporate level. Only
economic rents are effectively taxed under a corporate cash-flow tax.
There is no double
taxation of the normal return on equity.

This type of tax reform might reduce the cost of
capital of marginal equity-financed investment. This might result in increased domestic and
foreign corporate investment. Excessive (corporate tax-induced) debt financing of
investment will not be a problem; thin capitalisation rules are therefore no longer required.