No. 128: The Value of a Loss: The Impact of Restricting Tax Loss Transfers

Year: 2023

Type: Working Paper

Abstract

We study the economic consequences of anti-loss trafficking rules, which disallow the use of loss carryforwards as a tax shield after a substantial ownership change. We use staggered changes to these rules in the EU27 Member States, Norway, and the United Kingdom from 1998 to 2019 and find that limiting the transfer of tax losses is related to the number of mergers and acquisitions (M&A) declining by 18%, driven by loss-making targets. Turning to broader industry dynamics, we find decreases in survival rates of young companies after tighter regulations. Loosening of regulation is associated with increased firm survival. Tightening (loosening) anti-loss trafficking rules is related to decreased (increased) industry productivity, especially in R&D-intensive industries that are more prone to loss-making. Finally, tighter anti-loss trafficking rules are associated with lower deal synergies and risk-taking. All effects concentrate in strict regimes.

Publication Information

TRR 266 researchers

Johannes Voget University of Mannheim

Johannes Voget holds the Chair of Taxation & Finance at the University of Mannheim. His research interests cover international taxation, corporate finance and public finance. Prior to joining the University of Mannheim, Johannes Voget held a position as Research Fellow at the Oxford University Centre for Business Taxation, with which he is still affiliated as a Research Associate.

Elisa Casi-Eberhard Norwegian School of Economics

Barbara Stage WHU

External researchers

Theresa Bührle

DOI

DOI Link

Cite this article as

Bührle, A.T., Casi-Eberhard, E., Stage, B., & Voget, J. (2023). The Value of a Loss: The Impact of Restricting Tax Loss Transfers. TRR 266 Accounting for Transparency Working Paper Series No. 128. http://dx.doi.org/10.2139/ssrn.4534712

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Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, Goethe University Frankfurt, University of Cologne, Leibniz University Hannover and TU Darmstadt who share the same research agenda.