Income-related Minimum Taxation Concepts and their Impact onCorporate Investment Decisions

In this paper we analyze the impact of various minimum taxation concepts oncorporate investment decisions. These investments can be realized in the form ofeither a real or a financial investment. In a quantitative analysis we refer to thefuture values of the investments as an indicator of tax-favored and tax-discriminatedprojects. Varying the concept-specific loss-offset parameters and cash flow timestructure and performing a Monte Carlo simulation reveals the impact of theparticular minimum taxation concept. For the first time a comprehensive set ofequations has been deduced to integrate different minimum tax concepts in a uniquemodel. The resulting equations can be used as a basis for further analyses of grouptaxation, wealth taxation and asymmetric taxation and allows us to gain first insightsinto the direction and magnitude of tax distortions of possible competing concepts.Depending on the set of parameters, complex and ambiguous tax effects can beidentified. The effect of minimum taxation depends on the existence and magnitudeof a depreciation effect. Both effects run contrary to each other, and the depreciationeffect is always greater. We find that all concepts distort in the same direction andthat real investments with increasing cash flows are more likely to be discriminatedby minimum taxation than financial investments or real investments with constantcash flows. However, in comparison to real investments with decreasing cash flowsfinancial investments suffer more from income-related minimum taxation concepts.These results provide interesting information for corporate investors having todecide on the location of an investment, and for tax reform discussions.<br<