Group Taxation, Asymmetric Taxation, and Cross-Border Investment Incentives in Austria

In 2005, Austria changed its group taxation and now provides an option for cross-border loss-offset. We analyze the combined impact of Austria's new group taxation and loss-offset limitations on cross-border investment decisions of Austrian corporations. Monte Carlo-simulations in an inter-temporal setting reveal that the impact on foreign real investment induced by the group taxation is ambiguous. Whereas marginal investment projects with decreasing cash flows tend to benefit from group taxation, innovative projects with initial losses and increasing cash flows may be discriminated. Investors should consider domestic earnings and repatriation decisions simultaneously before opting for group taxation