Investment neutrality

Decision neutrality ${\displaystyle \Downarrow }$ ${\displaystyle \Downarrow }$ ${\displaystyle \Downarrow }$ Investment neutrality Funding neutrality Legal form neutrality

The tax system is said to be investment neutral when the existence of taxes has no influence on the assessment of various investment projects .

A tax system is investment-neutral if the difference between the investment income and the capital use costs before tax is the same as after tax. The capital use costs correspond to the required minimum return that an investment project must generate before taxes so that the project after taxes can still be viewed as advantageous.

This means that investments with profit taxation would be made in the same amount as in the case without tax, in a taxless reference world. The taxation of profits should not change the investment behavior of investors. If investment neutrality is violated, a so-called tax paradox is possible. In the case of a tax paradox, an investment project can have a higher net present value than before taxes after taking into account the tax burden .

literature

• Robustness of the investment neutrality of important theoretical tax systems Dirk Schneider, Eul-Verlag ISBN 3-89936-411-2