Faculty of Economics and Business Administration Publications Database

Investment Impact of Tax Loss Treatment - Empirical Insights from a Panel of Multinationals

Dreßler, Daniel
Overesch, Michael
Volume: 20
Number: 3
Pages: 513 - 543
Month: June
ISSN-Print: 0927-5940
Link External Source: Online Version
Year: 2013
Keywords: Corporate taxation; Loss treatment; Group taxation; Multinational firms; Empirical analysis
Abstract: We analyze the impact of tax loss treatment on multinational investment. Basically, two effects of tax loss treatment can be expected. First, firms make their investment decisions considering potential future losses. Then, the various types of conceivable loss offset provisions affect investment decisions. Secondly, existing loss carryforwards resulting from losses in the past affect the tax rate elasticity of current investment decisions. Our empirical analysis is based on data of German multinationals. We pay particular attention to industries having a high probability to make losses. Our regression results suggest that a short carryforward time limit lowers investment in particular for firms with a high loss probability. We only find mixed evidence that group loss offsetting provisions foster investment. Concerning the effects of existing losses carried forward, we find a reduced tax rate elasticity of investment for companies shielded by loss carryforwards.