Financing Decisions, Legal Status of the Firm, and Business Taxation (Unternehmensfinanzierung, Unternehmensrechtsform Und Besteuerung)

Abstract

Under a progressive capital income tax neutral taxation concerning the legal status of the firm and financing decisions is not feasible. In this case we ensure neutrality only if the corporate tax is completely integrated into the personal income tax. Otherwise, financing and legal status neutrality of taxation requires a proportional tax on capital income. Furthermore, taking account of international taxation it is necessary to implement identical tax systems in every country to keep tax neutrality. Facing international tax competition of sovereign countries this is not likely to be realized. Although it is often stated that the German tax system discriminates specific legal forms we find the average tax burden to be mainly independent of the legal status. In contrast, taxation approximately keeps financial neutrality for partnerships but may distort financing decisions severely in corporations.

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