Do Tax Loss Restrictions Distort Venture Capital Funding of Start-Ups?

66 Pages Posted: 11 Feb 2021

See all articles by Theresa Bührle

Theresa Bührle

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

Date Written: 2021

Abstract

Anti-tax loss trafficking rules disallow the use of loss carryforwards after a change in ownership or activity (such as significant changes in turnover, employment, or the product portfolio). This restriction could threaten accumulated loss carryforwards of start-ups. Accounting for the in-creased risk and reduced return on their investment, VC investors could reduce their funding. I analyze whether the venture capital (VC) funding of start-ups in Europe is affected by these regulations. I base my empirical analysis on several case studies and a panel analysis covering VC-funded companies in the EU28 Member States from 1999 to 2014. My findings suggest that strict anti-tax loss trafficking rules indeed impair VC funding. Especially more mature companies and companies in high-tech industries are affected.

Keywords: Venture capital, taxes, loss carryforward, start-ups, anti-tax loss trafficking

JEL Classification: M13, G24, H25

Suggested Citation

Bührle, Anna Theresa, Do Tax Loss Restrictions Distort Venture Capital Funding of Start-Ups? (2021). ZEW - Centre for European Economic Research Discussion Paper No. 21-008, Available at SSRN: https://ssrn.com/abstract=3783693 or http://dx.doi.org/10.2139/ssrn.3783693

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

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