Tax Loss Offset Restrictions - Last Resort for the Treasury? An Empirical Evaluation of Tax Loss Offset Restrictions Based on Micro Data

Abstract

In Germany, the tax loss carry-forward of corporations significantly increased over the last decade. At the same time only a small percentage of losses have been effectively offset in the following periods. One potential reason for this puzzle is that stricter loss offset restrictions have been introduced in recent years. I use a newly developed micro simulation model for the corporate sector in Germany to evaluate the fiscal effects of these restrictions. Additionally, distributional breakdowns concerning the amounts of tax loss carry-forward and the effects of loss offset restrictions are provided. I find that the restrictions on the use of tax loss carryback are rather ineffective while the newly introduced minimum taxation considerably increases yearly tax revenue by 1.1 billion Euro.

Keywords: micro simulation, loss offset restrictions, corporate taxation, tax loss carryforward, tax loss carry-back, tax reform

JEL Classification: H25, C8