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The Value of a Loss: The Impact of Restricting Tax Loss Transfers

Diskussionspapiere extern

Theresa Bührle, Elisa Casi, Barbara Stage, Johannes Voget

SSRN, 2023, 56 S.
(TRR 266 Accounting for Transparency Working Paper Series ; 128)


We study the economic consequences of anti-loss trafficking rules, which disallow theuse of loss carry-forwards as tax shield after a substantial ownership change. We usestaggered changes to anti-loss trafficking rules in the EU27 Member States, Norwayand United Kingdom from 1998 to 2019 and find that limiting the transfer of tax lossesreduces the number of M&As by 18%. The impairment is driven by loss-making targets.Turning to the broader impact on industry dynamics, we find decreases in survival ratesof young companies in response to tighter regulations. Some of these start-up deathsare compensated by new firm entrants. We further detect that loosening of regulationspurs firm entry and survival. Finally, tightening (loosening) anti-loss trafficking rulesimpairs (increases) return on assets, especially for R&D-intensive firms that are moreprone to loss-making in their life cycle.

Theresa Bührle

Research Associate in the Public Economics Department

JEL-Classification: G34;G38;H25
Keywords: Mergers and acquisitions, anti-loss trafficking rules, taxes, market entry, market exit, productivity, innovation