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The impact of thin capitalization rules on shareholder financing

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  • Maßbaum, Alexandra
  • Sureth, Caren

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.

Suggested Citation

  • Maßbaum, Alexandra & Sureth, Caren, 2008. "The impact of thin capitalization rules on shareholder financing," arqus Discussion Papers in Quantitative Tax Research 39, arqus - Arbeitskreis Quantitative Steuerlehre.
    • Handle: RePEc:zbw:arqudp:39
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    More about this item

    Keywords

    business taxation; capital structure; interest barrier; Miller equilibrium; share holder financing; thin capitalization rules;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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