Download This PaperDo Tax Loss Restrictions Distort Venture Capital Funding of Start-Ups?
42 Pages Posted: 11 Feb 2021 Last revised: 12 Sep 2023
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Do Tax Loss Restrictions Distort Venture Capital Funding of Start-Ups?
Do Tax Loss Restrictions Distort Venture Capital Funding of Start-Ups?
Date Written: November 23, 2022
Abstract
I analyze whether anti-tax loss trafficking rules affect the funding of start-ups in Europe. I base my empirical analysis on a panel of VC-funded companies in the EU28 Member States from 1999 to 2014. These regulations disallow the use of loss carry-forwards after a substantial change in ownership or activity. This restriction could threaten accumulated loss carry-forwards of start-ups. Accounting for the increased risk and reduced return on their investment, venture capital (VC) investors could reduce their funding. My findings suggest that strict anti-tax loss trafficking rules indeed impair VC funding. Especially companies in high-tech industries are affected.
Keywords: Venture capital, taxes, loss carryforward, start-ups, anti-tax loss trafficking
JEL Classification: M13, G24, H25
Suggested Citation: Suggested Citation