The Impact of Thin Capitalization Rules on Shareholder Financing

Arqus Quantitative Tax Research Discussion Paper No. 39

33 Pages Posted: 20 May 2008

See all articles by Caren Sureth-Sloane

Caren Sureth-Sloane

Paderborn University; Vienna University of Economics and Business; TRR 266 Accounting for Transparency

Alexandra Maßbaum

University of Paderborn - Faculty of Business Administration, Economics and Business Computing

Date Written: February 2008

Abstract

From a tax planner's point of view, it is often attractive to choose debt over equity financing. As this has led to an increase of debt financing of corporations, many countries have introduced thin capitalization rules to secure their tax revenues. We analyze the influence of section 8a of the German Corporate Tax Code on corporate capital structure decisions.

Furthermore, the impact of the new interest barrier is taken into consideration. The existence of the Miller equilibrium as well as definite financing effects depend significantly on the fraction of long-term debt, of substantial shareholders and when capital gains are realized.

Keywords: business taxation, capital structure, interest barrier, Miller equilibrium, shareholder financing, thin capitalization rules

JEL Classification: H25, H21, G32

Suggested Citation

Sureth-Sloane, Caren and Maßbaum, Alexandra, The Impact of Thin Capitalization Rules on Shareholder Financing (February 2008). Arqus Quantitative Tax Research Discussion Paper No. 39, Available at SSRN: https://ssrn.com/abstract=1134756 or http://dx.doi.org/10.2139/ssrn.1134756

Caren Sureth-Sloane (Contact Author)

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Alexandra Maßbaum

University of Paderborn - Faculty of Business Administration, Economics and Business Computing ( email )

Warburger Str. 100
D-33098 Paderborn
Germany
+49 5251 60 2933 (Phone)
+49 5251 60 3520 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
241
Abstract Views
2,631
rank
165,050
PlumX Metrics