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Asymmetric Taxation and Cross-Border Investment Decisions

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  • Rainer Niemann
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    Abstract

    This paper analyzes the impact of particular loss offset limitations on intrastate and cross-border investment decisions. Investment can be realized in the investor’s domestic business, in a foreign branch or in a foreign subsidiary. The relative impact on the optimal real investment alternative compared to the optimal financial investment alternative indicates the investment incentives of tax law asymmetries. Integrating an initial loss carryforward at the time of investment creates a special decision situation. Varying loss offset parameters typically induces ambiguous effects that depend on the combination of all parameters under consideration. On average, a domestic minimum tax and a time limit on loss carryforwards tend to depress real investment. However, it is possible to find counter-examples. Real investment projects with decreasing cash flows and expected infra-marginal projects are less likely to be discriminated against than projects with increasing cash flows and expected marginal projects, respectively. An initial loss carryforward generates a domestic lock-in effect that may be intensified by loss offset limitations. Depending on the parameter setting, the opposite – a push-out effect – may occur as well.

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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1219.

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    Date of creation: 2004
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    Handle: RePEc:ces:ceswps:_1219

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    Keywords: investment; asymmetric taxation; loss offset; loss carryforward; minimum tax;

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    Cited by:
    1. Rainer Niemann & Corinna Treisch, 2005. "Group Taxation, Asymmetric Taxation and Cross-Border Investment Incentives in Austria," CESifo Working Paper Series 1506, CESifo Group Munich.
    2. Rainer Niemann, 2011. "Asymmetric Taxation and Performance-Based Incentive Contracts," CESifo Working Paper Series 3363, CESifo Group Munich.
    3. Niemann, Rainer & Treisch, Corinna, 2005. "Grenzüberschreitende Investitionen nach der Steuerreform 2005: stärkt die Gruppenbesteuerung den Holdingstandort Österreich?," arqus Discussion Papers in Quantitative Tax Research 1, arqus - Arbeitskreis Quantitative Steuerlehre.
    4. Sabrina Dorn, 2009. "Monte-Carlo Simulations Revised: A Reply to Arqus," Ifo Working Paper Series Ifo Working Paper No. 73, Ifo Institute for Economic Research at the University of Munich.
    5. Caren Sureth & Ralf Maiterth, 2008. "The impact of minimum taxation by an imputable wealth tax on capital budgeting and business strategy of German companies," Review of Managerial Science, Springer, Springer, vol. 2(2), pages 81-110, July.
    6. Ortmann, Regina & Sureth, Caren, 2014. "Can the CCCTB alleviate tax discrimination against loss-making European multinational groups?," arqus Discussion Papers in Quantitative Tax Research 165, arqus - Arbeitskreis Quantitative Steuerlehre.

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