Rainer Niemann

Tax Rate Uncertainty, Investment Decisions, and Tax Neutrality

This article deals with the effects of tax rate uncertainty (TRU) on individual investment behavior. We show that under risk neutrality as well as under risk aversion, increased TRU has an ambiguous impact on investment, depending on the investment projects structure of cash flows and depreciation deductions. Although the investment effects are small the popular view that tax policy uncertainty depresses real investment is rejected. Further, tax neutrality in the light of tax policy uncertainty is defined more precisely. Neutrality results for the Johansson-Samuelson tax and the cash flow tax that are known from certainty are confirmed under TRU.

Costs, Benefits, and Tax-induced Distortions of Stock Option Plans

In recent years stock option plans (SOPs) have become an important component of managerial remuneration in most industrialized countries. Commonly accepted corporate as well as individual taxes have a major impact on the costs of an SOP. In contrast, the influence of taxes on the benefits of an SOP remains widely unperceived. This article deals with both cost and benefit aspects simultaneously by integrating taxation into a principal-agent model in which the agent is compensated in options. By deriving the optimal quantity of options to be granted and the optimal exercise price to be set, we can quantify the resulting profits for managers and shareholders. By comparing the results in a tax-free world to results that take into account different levels of taxation, we can identify several tax-induced incentive distortions.

The Effects of Differential Taxation on Managerial Effort and Risk Taking

Differential taxation implies the existence of different tax rates or tax bases for different types of investments. We analyze the effects of differential taxation on managerial effort and risk taking in a moral-hazard model of the LEN type. The agent selects a portfolio of a high-risk and a low-risk project and chooses his effort level simultaneously. The principal anticipates the agents choice and offers an incentive contract. A preferential tax base for the high-risk project induces a higher managerial effort and a higher optimal fraction of the high-risk project. A preferential tax rate increases or decreases the fraction of the high-risk project, depending on the agents degree of risk aversion.

Estimation of Tax Values Based on IFRS Information: An Analysis of German DAX30 and Austrian ATX Listed Companies

Although tax values of corporate assets and liabilities could provide useful information for various economic decisions, they are typically unknown to financial statement users. Additional corporate tax information has been repeatedly claimed. We analyse whether tax balance sheets can be reconstructed using tax information provided by consolidated IFRS accounts. Our results suggest that, for DAX30 firms, the most important differences between IFRS and tax reporting occur for intangibles and provisions. For ATX companies, diverging IFRS and tax rules relating to fixed assets and provisions are the main cause for IFRS–tax differences. We find evidence that book values reported in IFRS balance sheets are generally higher than tax values. Only in connection with inventories, we observe that the median of estimated tax values is higher than IFRS-book value for both Austrian and German groups. We also try to estimate the total stock of unused tax losses because it offers information about a companys potential loss offsets and future tax payments. Our analyses show that estimated values of tax losses often do not differ substantially from the actual stock of tax losses. Due to several methodological and practical problems, we conclude that, especially for multinationals, reconstructed tax balance sheets should be critically scrutinised.

Limited Liability, Asymmetric Taxation, and Risk Taking - Why Partial Tax Neutralities Can Be Harmful

We examine the combined effects of asymmetric taxation and limited liability on optimal risk taking of investors. Given an optimal risk level in the pre-tax case under full liability, loss-offset restrictions reduce, and limited liability enhances the incentives for taking risk. For every degree of limited liability we can find corresponding loss-offset limitations inducing the same optimal risk level as in the reference case. Thereby we get tax neutrality with respect to risk taking. We show that tax neutrality with respect to risk taking is incompatible with tax neutrality with respect to the choice of the legal form. In our model, full liability requires symmetric taxation and limited liability requires asymmetric taxation of profits and losses.

Deferred Shareholder Taxation – Implementing a Neutral Business Tax in the European Union

This paper proposes the replacement of the corporate income tax by shareholder-based capital income taxation. Our proposal would guarantee investment neutrality of taxation and reduced tax compliance costs. The proposal is based on the S-base cash flow tax. Under the S-base tax, transactions within the corporate sector are not taxable and only transactions between shareholders and corporations are subject to tax. In contrast to existing S-base cash flow tax systems, tax deductibility of investments is deferred. Rather, the acquisition costs and capital endowments are compounded at the capital market rate and are set off against future capital gains. Dividends and withdrawals are fully taxable at the shareholder level. Because of the deferral of the tax payments our proposal is called ‘Deferred Shareholder Tax’ (DST). The DST exhibits the same neutrality properties as the traditional cash flow tax. Moreover, the compounded inter-temporal credit method ensures that it is neutral with respect to the decision between domestic and foreign investment. To increase acceptance of the DST, current taxpayers’ documentation requirements will be reduced rather than extended. Our proposal could be realised in a single EU country or in all member states of the EU.

Investitionswirkungen der Gruppenbesteuerung — Die österreichische Steuerreform als Vorbild für die deutsche Organschaft?

ZusammenfassungMit der österreichischen Steuerreform 2005 wurde die Möglichkeit der grenzüberschreitenden Verlustverrechnung im Rahmen der Gruppenbesteuerung eröffnet. Die vorliegende Arbeit untersucht den simultanen Einfluss von Gruppenbesteuerung und Verlustverrechnungsbeschränkungen auf das Investitionsverhalten österreichischer Kapitalgesellschaften. Hierzu werden im Rahmen einer dynamischen Investitionsrechnung Monte-Carlo-Simulationen durchgeführt. Es kann gezeigt werden, dass der Einfluss der Gruppenbesteuerung auf die Vorteilhaftigkeit von Auslandsinvestitionen nicht eindeutig ist. Sowohl die Stärkung des Holdingstandorts Österreich als auch die Vorbildfunktion der Gruppenbesteuerung für eine Reform der deutschen Organschaftsregelungen erscheinen zweifelhaft.SummaryIn 2005, Austria changed its group taxation and now provides an option for cross-border loss-offset. We analyze the combined impact of Austria’s new group taxation and loss-offset limitations on cross-border investment decisions of Austrian corporations. Monte Carlo-Simulations in an inter-temporal setting reveal that the impact on foreign real investment induced by the group taxation is ambiguous. Whereas marginal investment projects with decreasing cash flows tend to benefit from group taxation, innovative projects with initial losses and increasing cash flows may be discriminated. Investors should consider domestic earnings and repatriation decisions simultaneously before opting for group taxation.

Die versehentliche Einführung einer konsumorientierten Einkommensteuer in Österreich und Lehren für die Abgeltungssteuer in Deutschland

Wie andere europaische Staaten auch hat Osterreich uber Jahrzehnte hinweg beansprucht, Zinsertrage aus privaten Finanzanlagen in der Einkommensteuer zu erfassen, ohne diesen Besteuerungsanspruch durchsetzen zu konnen. Im Gegensatz zu seinen europaischen Nachbarn hat Osterreich hieraus bereits Anfang der 90er Jahre Konsequenzen gezogen. Im Jahr 1993 wurde eine Quellensteuer auf Zinsertrage eingefuhrt, mit deren Abfuhrung die Einkommensteuer, die Vermogensteuer und die Schenkungsteuer abgegolten sind. Anders als die gescheiterten Quellensteuerexperimente Ende der 80er Jahre in Deutschland hat die Abgeltungssteuer nicht zu einer Kapitalflucht ins Ausland gefuhrt1.

Wirkungen der Abschnittsbesteuerung auf internationale Investitions- und Repatriierungsentscheidungen

ZusammenfassungIm vorliegenden Beitrag werden die Entscheidungswirkungen der deutschen Abschnittsbesteuerung auf die optimale Repatriierungspolitik multinationaler Unternehmen untersucht. Anhand von inländischen Einzelunternehmen und Kapitalgesellschaften wird gezeigt, dass Verlustverrechnungsbeschränkungen und ein jahresprogressiver Einkommensteuertarif sowohl die Höhe und den Zeitpunkt der jeweiligen Repatriierungsbeträge als auch die Ausübung des Wahlrechts zwischen Anrechnung und Abzug ausländischer Quellensteuern beeinflussen. Das Abschnittsprinzip verzerrt sowohl die Wahl zwischen Finanzanlage und Realinvestition als auch die Entscheidung zwischen Betriebsstätte und Tochterkapitalgesellschaft.SummaryThis paper analyses the effects of the periodic taxation principle on the repatriation policy of a multinational firm. A domestic investor decides on real versus financial investment both of which can be realised either in a foreign branch or a foreign subsidiary. Loss-offset restrictions and progressive income taxation have an unsystematic impact on the level as well as the time of repatriation. The optimal choice between credit and deduction of foreign taxes also depends on the interaction of loss-offset rules and tax progressivity. The periodic taxation principle distorts the decision between real and financial investment. Moreover, periodic taxation arbitrarily affects the decision between foreign branch and foreign subsidiary. Inter-temporal optimisation of repatriation policy typically involves non-linear mixed-integer optimisation problems which are notoriously hard to solve. However, numerical heuristics provided by other fields of Business Economics generate approximative solutions.

Investment Effects of Wealth Taxes Under Uncertainty and Irreversibility

The growing dissatisfaction with perceived distributional inequality and budgetary constraints gave rise to a discussion on the (re-)introduction of wealth taxes. Wealth taxes are typically levied on private wealth, in some countries also on corporate wealth. To avoid misleading statements concerning possible distributional consequences of wealth taxes, preceding analyses of the economic and particularly investment effects are necessary. As investments drive job creation, tax-induced changes in investment timing may significantly affect the income and wealth distribution. We analyze the impact of wealth taxes on investment timing under uncertainty and irreversibility and the propensity to carry out risky projects. Using a Dixit/Pindyck type real options model we find that wealth taxes have real effects. This means that higher wealth tax rates can either stimulate or depress the propensity to invest in risky projects. We find that apparently paradoxical wealth tax effects (accelerated investment due to higher wealth tax rates) are more likely for low interest rates and for high-risk investments. Using either historical cost or fair value accounting may affect investment timing ambiguously. Thus, the design of wealth taxes is crucial for the resulting delay or acceleration of investment. Although our model takes an individual perspective, our findings are also relevant for the current tax policy discussion on the introduction of wealth taxes. Our results indicate that wealth taxes are particularly harmful for specific classes of investments, for example low-risk investments.