Tax Law and the Transfer of Start-up Losses: A European Overview and Categorization

30 Pages Posted: 1 Oct 2019

See all articles by Theresa Bührle

Theresa Bührle

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - Accounting and Taxation

Christoph Spengel

Centre for European Economic Research (ZEW)

Date Written: 2019

Abstract

Most of the European Member States employ anti-loss trafficking rules. They aim to prevent the acquisition of mere corporate shells with high tax loss carryforwards for the tax asset to be utilized in profitable companies. However, other corporations can unintentionally be affected by the anti-abuse regulations if there is a change in ownership or activity. The transfer restrictions have been argued to impair start-up financing, as investors are faced with the risk of losing accumulated loss carryforwards in the corporation upon the entering of new or the capital increase of existing investors. This study provides an overview over the design and development of loss transfer restrictions in the EU28 over a time period of 19 years (2000–2018). Different aspects of the regulations are analyzed against the background of their impact on start-ups. Finally, the rules are categorized with respect to their strictness. Over time, more countries introduced restrictions. At the same time, the regulations became more lenient, offering start-ups more opportunities to maintain their loss carryforwards and, therefore, decreasing the risk for investors.

Keywords: tax loss carryforward, loss trafficking, loss transfer, entrepreneurship, start-ups

JEL Classification: M13, H25, H32, L52

Suggested Citation

Bührle, Anna Theresa and Spengel, Christoph, Tax Law and the Transfer of Start-up Losses: A European Overview and Categorization (2019). ZEW - Centre for European Economic Research Discussion Paper No. 19-037, Available at SSRN: https://ssrn.com/abstract=3461547 or http://dx.doi.org/10.2139/ssrn.3461547

Anna Theresa Bührle (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - Accounting and Taxation ( email )

Schloss
Mannheim, 68131
Germany

Christoph Spengel

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

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