Do tax loss restrictions distort venture capital funding of start-ups?

Anna Bührle

No 21-008, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Anti-tax loss trafficking rules disallow the use of loss carryforwards after a change in ownership or activity (such as significant changes in turnover, employment, or the product portfolio). This restriction could threaten accumulated loss carryforwards of start-ups. Accounting for the increased risk and reduced return on their investment, VC investors could reduce their funding. I analyze whether the venture capital (VC) funding of start-ups in Europe is affected by these regulations. I base my empirical analysis on several case studies and a panel analysis covering VC- funded companies in the EU28 Member States from 1999 to 2014. My findings suggest that strict anti-tax loss trafficking rules indeed impair VC funding. Especially more mature companies and companies in high-tech industries are affected.

Keywords: Venture capital; taxes; loss carryforward; start-ups; anti-tax loss trafficking (search for similar items in EconPapers)
JEL-codes: G24 H25 M13 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-acc, nep-ent, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:21008

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