Partial Loss Refundability: How Are Corporate Tax Losses Used?

Cooper, Michael G; Knittel, Matthew

doi:10.17310/ntj.2006.3.16

Cited by 70 publications

(37 citation statements)

References 3 publications

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“…Graham and Kim (2009) Altshuler et al (2008) trace the losses of the 2001 recession and distinguish by industries. Papers by Devereux (1989), Aarbu and MacKie-Mason (2003) and Cooper and Knittel (2006) also provide valuable insights that firms seem to structure their investments in a way that they can recover tax losses before they expire. A recent…”

Section: Introductionmentioning

confidence: 99%

Investment impact of tax loss treatment—empirical insights from a panel of multinationals

Dreßler,

Overesch

2012

Int Tax Public Finance

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10097.pdf Non-Technical SummaryWhile profits are taxed, no immediate tax refund is granted if a corporation suffers losses.Losses can only be used to offset profits generated in other periods or by affiliated companies.The tax loss offset rules, however, significantly differ across countries. While only some countries grant a loss carryback option, a loss carryforward is always possible. Yet, in some countries the intertemporal loss offset is subject to time restrictions. Moreover, several countries have a group taxation which allows consolidation of profits and losses across affiliated firms.This paper analyzes in how far multinational firms factor the differently strict tax loss treatment rules into their investment decisions. We consider two effects of tax loss treatment. Our results suggest that the existence of a group taxation rule in particular exerts a positive influence on investments, which is even stronger for firms with a relatively high probability to suffer losses. Regarding the investment structure, a group taxation regime makes multinational groups distribute their investments across more subsidiaries. Concerning the intertemporal loss offset, we find that investment levels are significantly affected by tax loss offset rules if a subsidiary operates in an industry where the probability to suffer losses is high. Interestingly, a broad time limit until unutilized losses forfeit, however, does not seem to hinder investments.In the second part of our analysis, we trace effects of existing tax loss carryforwards on investment decisions. Our results suggest that the tax rate elasticity of investment actually is significantly reduced if a subsidiary can offset taxable profits with losses carried forward from previous periods. Abstract: We analyze the impact of tax loss treatment on the size and structure of multinational investments. Basically, two effects of tax loss treatment can be expected. First, firms make their investment decisions in the face of 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. The empirical analysis is based on data of German multinationals. The data is taken from the MiDi database provided by the German Central Bank (Deutsche Bundesbank). Re...

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Section: Introductionmentioning

confidence: 99%

Investment impact of tax loss treatment—empirical insights from a panel of multinationals

Dreßler,

Overesch

2012

Int Tax Public Finance

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“…It is recognized, for all companies not only the offset against future profits, also with the past benefits, which allows, according to several studies (Cooper, Knittel, 2006) to better exploit the potential of this mechanism.…”

Section: Discussionmentioning

confidence: 99%

“…The fact of compensating losses with profits in future years results in a loss for society which increases with the time horizon. This mechanism affects not only the effective tax rate of the company, it can also affect the pattern of investment in the society as well as the response to tax incentives such as accelerated depreciation of fixed assets investment (Cooper, Knittel, 2006).…”

Section: St International Conference On Business Managementmentioning

confidence: 99%

1st INTERNATIONAL CONFERENCE ON BUSINESS MANAGEMENT - “NEW CHALLENGES IN BUSINESS RESEARCH" - Conference proceedings

Marzal

Selva

2015

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“…Endres et al (2007) also give a detailed description of loss offset provisions across the EU. 7 In their empirical study Cooper and Knittel (2006) investigate the loss offset behavior of U.S. corporations from 1993 to 2003 and show that around half of all losses is carried forward and mostly offset with considerable time delays. An additional third of all losses vanishes completely due to company closures, while around 10 to 20 percent are kept on the balance sheet but remain totally unused.…”

Section: Introductionmentioning

confidence: 99%

Asymmetric Taxation of Profits and Losses and its Influence on Investment Timing: Paradoxical Effects of Tax Increases

2012

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in JEL-Classification: H21 · H25Abstract: Applying a time-discrete investment model and a setting with an entry and an exit option and cash flow uncertainty we present a dynamic analysis of the impact of various loss offset regimes on risky investment timing decisions. We find that a tax system with loss offset restrictions will not distort timing decisions if the investor can exit the project. By contrast, in a setting without exit flexibility a tax discrimination against losses can cause paradoxical effects. In that respect, we analytically identify conditions for higher taxes to increase investors' propensity to choose early investment and hence accelerate entrepreneurial investment.

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Partial Loss Refundability: How Are Corporate Tax Losses Used?

Cited by 70 publications

References 3 publications

Investment impact of tax loss treatment—empirical insights from a panel of multinationals

Investment impact of tax loss treatment—empirical insights from a panel of multinationals

1st INTERNATIONAL CONFERENCE ON BUSINESS MANAGEMENT - “NEW CHALLENGES IN BUSINESS RESEARCH" - Conference proceedings

Asymmetric Taxation of Profits and Losses and its Influence on Investment Timing: Paradoxical Effects of Tax Increases

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