Wealth Tax as Alternative Minimum Tax ?– The Impact of a Wealth Tax on Business Structure and Strategy

An alternative minimum tax (AMT) is often regarded as desirable. We analyze a wealthtax at corporate and personal level that is designed as an AMT as proposed by the GermanGreen Party. This wealth tax is imputable to profit taxes and is hence intended to preventmultiple (multistage) taxation. Referring to data from annual reports and the GermanCentral Bank we model enterprises of different structure, industry, size and legal status.We show that companies in the service sector which generally maintain rather high gearingrates are more frequently subjected to the wealth tax than capital intensive industries.This result runs counter to well-known effects of a common wealth tax. Capital intensivefirms, e.g. in the metal industry, are levied with definitive wealth tax only if they have largeloss carry-forwards or extremely volatile profits. Furthermore, partnerships often enjoywealth tax privileges due to uniform taxation at individual level whereas corporationsmay suffer from the wealth tax at corporate and personal level caused by imputationbacklogs. Obviously, the underlying AMT influences corporate dividend policy evoking apush-out effect. We prove that this kind of wealth taxation usually favors financial ratherthan real investment and encourages outbound investment. Consequently, introducing anAMT discriminates against many firms and investment projects, especially if economicincome is lower than taxable income. This proves that whenever income is taxed correctly,AMT is dispensable.