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The impact of thin capitalization rules on shareholder financing

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  • Maßbaum, Alexandra
  • Sureth, Caren
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    Abstract

    From a tax planner's point of view, it is often attractive to choose debt over equity financing. As this has led to an increase of debt financing of corporations, many countries have introduced thin capitalization rules to secure their tax revenues. We analyze the influence of section 8a of the German Corporate Tax Code on corporate capital structure decisions. Furthermore, the impact of the new interest barrier is taken into consideration. The existence of the Miller equilibrium as well as definite financing effects depend significantly on the fraction of long-term debt, of substantial shareholders and when capital gains are realized. --

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    Bibliographic Info

    Paper provided by arqus - Arbeitskreis Quantitative Steuerlehre in its series arqus Discussion Papers in Quantitative Tax Research with number 39.

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    Date of creation: 2008
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    Handle: RePEc:zbw:arqudp:39

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    Related research

    Keywords: business taxation; capital structure; interest barrier; Miller equilibrium; share holder financing; thin capitalization rules;

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    1. Michael Overesch & Georg Wamser, 2006. "German Inbound Investment, Corporate Tax Planning, and Thin-Capitalization Rules - A Difference-in-Differences Approach," Ifo Working Paper Series Ifo Working Papers No. 37, Ifo Institute for Economic Research at the University of Munich.
    2. Lachmund, Andreas & Kiesewetter, Dirk, 2004. "Wirkungen einer Abgeltungssteuer auf Investitionsentscheidungen und Kapitalstruktur von Unternehmen," Tübinger Diskussionsbeiträge 278, University of Tübingen, School of Business and Economics.
    3. Thiess Büttner & Michael Overesch & Ulrich Schreiber & Georg Wamser, 2006. "The Impact of Thin-Capitalization Rules on Multinationals’ Financing and Investment Decisions," CESifo Working Paper Series 1817, CESifo Group Munich.
    4. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    5. DeAngelo, Harry & Masulis, Ronald W, 1980. " Leverage and Dividend Irrelevancy under Corporate and Personal Taxation," Journal of Finance, American Finance Association, vol. 35(2), pages 453-64, May.
    6. Fischer, Edwin O & Heinkel, Robert & Zechner, Josef, 1989. " Dynamic Capital Structure Choice: Theory and Tests," Journal of Finance, American Finance Association, vol. 44(1), pages 19-40, March.
    7. Zechner, Josef, 1990. "Tax Clienteles and Optimal Capital Structure under Uncertainty," The Journal of Business, University of Chicago Press, vol. 63(4), pages 465-91, October.
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