The Value of a Loss: The Impact of Restricting Tax Loss Transfers

58 Pages Posted: 8 Aug 2023 Last revised: 26 Dec 2023

See all articles by Theresa Bührle

Theresa Bührle

DIW Berlin

Elisa Casi

Norwegian School of Economics (NHH) - Department of Business and Management Science

Barbara Stage

WHU - Otto Beisheim School of Management

Johannes Voget

University of Mannheim

Multiple version iconThere are 2 versions of this paper

Date Written: December 18, 2023

Abstract

We study the economic consequences of anti-loss trafficking rules, which disallow the
use of loss carry-forwards as tax shield after a substantial ownership change. We use
staggered changes to anti-loss trafficking rules in the EU27 Member States, Norway
and United Kingdom from 1998 to 2019 and find that limiting the transfer of tax losses
reduces the number of M&As by 18%. The impairment is driven by loss-making targets.
Turning to the broader impact on industry dynamics, we find decreases in survival rates
of young companies in response to tighter regulations. Some of these start-up deaths
are compensated by new firm entrants. We further detect that loosening of regulation
spurs firm entry and survival. Finally, tightening (loosening) anti-loss trafficking rules
impairs (increases) return on assets, especially for R&D-intensive firms that are more
prone to loss-making in their life cycle.

Keywords: Mergers and acquisitions, anti-loss trafficking rules, taxes, market entry, market exit, productivity, innovation

JEL Classification: G34, G38, H25

Suggested Citation

Bührle, Anna Theresa and Casi-Eberhard, Elisa and Stage, Barbara and Voget, Johannes, The Value of a Loss: The Impact of Restricting Tax Loss Transfers (December 18, 2023). TRR 266 Accounting for Transparency Working Paper Series No. 128, Available at SSRN: https://ssrn.com/abstract=4534712 or http://dx.doi.org/10.2139/ssrn.4534712

Anna Theresa Bührle (Contact Author)

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+49 30 89789 - 368 (Phone)

HOME PAGE: http://https://www.diw.de/cv/en/tbuehrle

Elisa Casi-Eberhard

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Bergen, 5045
Norway

Barbara Stage

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Johannes Voget

University of Mannheim ( email )

L 7, 3-5
Mannheim, 68161
Germany

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

Paper statistics

Downloads
239
Abstract Views
834
Rank
195,100
PlumX Metrics