The Expected Revenue Loss from a Corporate Tax Which is Neutral with Respect to Financing Decisions (Was Kostet Eine Finanzierungsneutrale Besteuerung Von Kapitalgesellschaften?) (German)

An Estimation of the Revenue Loss from Introducing a Notional Interest Deduction on Nominal Capital into the German Corporate Tax. Capital income taxation in Germany distorts financing decisions of corporations as the after-tax cost of capital for equity is considerably higher than for debt. Since 2006 the German Council of Economic Experts has been proposing a neutral tax system similar to the Norwegian shareholder ACE tax. In the last German corporate and personal income tax reform in 2008/09 this proposal has not been realized because revenue losses were expected to be unacceptably high. In this paper we estimate the expected tax revenue losses of an alternative concept which also ensures neutrality with respect to financing decisions: a notional interest deduction on nominal capital and capital reserve. Data from the official German corporate income tax statistics are used. We show that revenue losses are relatively small.