Tax paradox

This article describes the tax paradox of financial accounting, for the Edgeworth tax paradox see there.

The tax paradox is a term from the investment calculation . It states that under certain circumstances the capital value of an investment increases if a profit tax is included in the calculation. This can make an investment more advantageous compared to an alternative investment in the capital market. Usually, the inclusion of taxes reduces the net present value.

This calculation assumes full tax loss compensation, which comes into effect through the payout at the beginning of the investment. So at the beginning a negative tax on the "loss" is factored in. Of course, taxes are also levied on later payments. However, these tax payments are only incurred in later periods and are accordingly discounted higher.

causes

1. Interest on capital market income is also taxable.

2. Certain types of depreciation lead to a tax deferral (e.g. geometric degressive depreciation, special depreciation), which shifts tax payments to other periods (an interest-free tax credit is created).

3. The net present value is a relative measure of the advantages compared to capital market investments.

swell

• Hans Hirth: Fundamentals of financing and investment. Oldenbourg, Munich et al. 2005, ISBN 3-486-57783-2 .
• Louis Perridon , Manfred Steiner : Finance of the company. 14th revised and expanded edition. Vahlen, Munich 2007, ISBN 978-3-8006-3359-3 ( Vahlen's handbooks of economics and social sciences ).