Tax Shield

The tax shield (English, in German: tax shield) referred to in the financial sector the value that borrowing costs , debt or losses for enterprise value to contribute.

Since companies can use debts or losses to reduce taxes in most tax systems , these negative financial metrics increase the value of a company for a potential buyer who can offset them against their own profits . If a company is correspondingly indebted or continues old losses in the balance sheet , its market value is exactly the value of the tax advantage higher than the value of the company that is not in debt.

For this reason, insolvent or no longer active corporate shells can still be the target of company acquisitions ( mergers & acquisitions ).

Distinction

The French term " bouclier fiscal " makes use of the same visual comparison, but refers to something else, namely the income tax for natural persons .