Income-Related Minimum Taxation Concepts and Their Impact on Corporate Investment Decisions

Arqus Quantitative Tax Research Discussion Paper No. 55

46 Pages Posted: 12 Aug 2012

See all articles by Claudia Dahle

Claudia Dahle

University of Paderborn

Caren Sureth-Sloane

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

Date Written: October 1, 2008

Abstract

In this paper we analyze the impact of various minimum taxation concepts on corporate investment decisions. These investments can be realized in the form of either a real or a financial investment. In a quantitative analysis we refer to the future values of the investments as an indicator of tax-favored and tax-discriminated projects. Varying the concept-specific loss-offset parameters and cash flow time structure and performing a Monte Carlo simulation reveals the impact of the particular minimum taxation concept. For the first time a comprehensive set of equations has been deduced to integrate different minimum tax concepts in a unique model. The resulting equations can be used as a basis for further analyses of group taxation, wealth taxation and asymmetric taxation and allows us to gain first insights into the direction and magnitude of tax distortions of possible competing concepts. Depending on the set of parameters, complex and ambiguous tax effects can be identified. The effect of minimum taxation depends on the existence and magnitude of a depreciation effect. Both effects run contrary to each other, and the depreciation effect is always greater. We find that all concepts distort in the same direction and that real investments with increasing cash flows are more likely to be discriminated by minimum taxation than financial investments or real investments with constant cash flows. However, in comparison to real investments with decreasing cash flows financial investments suffer more from income-related minimum taxation concepts. These results provide interesting information for corporate investors having to decide on the location of an investment, and for tax reform discussions.

Keywords: corporate taxation, investment, loss carry-forward, loss-offset, minimum taxation, Monte Carlo simulation

JEL Classification: H25, H21, G31

Suggested Citation

Dahle, Claudia and Sureth-Sloane, Caren, Income-Related Minimum Taxation Concepts and Their Impact on Corporate Investment Decisions (October 1, 2008). Arqus Quantitative Tax Research Discussion Paper No. 55, Available at SSRN: https://ssrn.com/abstract=2128096 or http://dx.doi.org/10.2139/ssrn.2128096

Claudia Dahle

University of Paderborn

Warburger Str. 100
D-33098 Paderborn
Germany

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

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