Tax paradox

The term tax paradox has been used for different situations since the beginning of the 20th century. In the investment calculation, a tax paradox is used when the introduction of a tax makes a previously unfavorable investment advantageous. This can be demonstrated with the help of an equity-financed investment in property.
With the consideration of taxes (discount rate in tax law) and the associated recording of (depreciation-related) losses, investment objects with rising income tax rates are advantageous, provided that two conditions are met: The period surplus of an investment object is negative after depreciation and the company still shows profit overall.

A lower discount rate for alternative investments, which are also subject to income tax, due to the fact that taxes are taken into account, results in a less high discounting of the future payment surpluses. It can therefore be advantageous for a company to carry out investment objects that generate a tax loss during the period of validity of the measure, because this reduces the tax payment and thus the outflow of liquidity.

Was the explanation to "Tax paradox"Helpful? Rate now:

Weitere Erklärungen zu Steuern