Tax-oriented Valuation

On 22 June 2010, ZEW and the University of Mannheim welcomed 100 guests to this year’s Mannheim Corporate Tax Day. Held on an annual basis, this event provides a forum for prominent speakers from the worlds of science, business and financial administration to address current issues pertaining to national and international corporate taxation. The focus of this year’s conference was on issues of practical relevance relating to tax-oriented valuation.

Professor Christoph Spengel (University of Mannheim and ZEW) kicked off the event by welcoming the participants. The first lecture was then given by Dr. Martin Jonas (Warth & Klein AG), who explained the interplay between business valuation and taxation. Using the Tax Capital Asset Pricing Model, he illustrated the effects of the 2008 corporate tax reform on company value, with particular emphasis on the possible impact of the compensatory taxation of interest, dividends and capital gains on corporate value.

Mid-term reform targets

Recent changes to the tax code as well as areas still in need of reform were the focus of the lecture delivered by Professor Michael Schmitt (Baden-Württemberg Finance Ministry). Professor Schmitt began his talk by providing an overview of the modifications to the most important offset instruments contained in the 2008 corporate tax reform, which has been criticised for worsening the financial crisis. Schmitt then explained the consequences of the Accounting Law Modernisation Act for the calculation of profits for tax purposes before discussing the changes affecting value added tax and inheritance tax. Looking to the future of corporate taxation in his closing remarks, he recommended a reform of local government finance, a simplification of tax incentives for research and development as well as the offsetting of losses as medium-term targets for reform.

Dr. Florian Schultz (PricewaterhouseCoopers) explained some of the recent developments in tax-oriented valuation from the perspective of transaction consulting. Schultz began with an overview of the current challenges facing tax evaluation resulting from volatile corporate earnings, the role of the adviser as service provider and the increasing taxation of components not derived from earnings. In Schultz’s view, as a result of these developments, current tax and accounting policy is increasingly focused on avoiding losses and smoothing out volatility in order to protect losses carried forward or EBITDA.

Analysis of case studies

The round of lectures was followed by a panel discussion in which the previous speakers were joined by Professor Andreas Schumacher (Flick Gocke Schaumburg) and Professor Christoph Spengel. The panellists discussed some of the key points from the lectures and answered questions from the audience.

Participants had the opportunities to examine specific topics in greater depth in the afternoon session through the analysis of case studies. Stefan Ditsch (PricewaterhouseCoopers) and Professor Michael Schaden (Ernst & Young) discussed the possibilities of loss exploitation through tax planning. Senior government official Ralf Neumann (Rhineland Tax Office) and Professor Andreas Schumacher analysed some initial practical observations following the relaxation of § 8c of the Corporate Income Tax Act. The focus of the third workshop, led by Oliver Dörfler (KPMG Deutsche Treuhand AG) and Under-secretary Dietrich Weilbach (Baden-Württemberg Finance Ministry), was on cases relating to the Economic Growth Acceleration Act.

The key take-away from the Mannheim Corporate Tax Day was that the combination of the economic crisis along with considerable changes to German tax law has created specific challenges when it comes to tax evaluation. The event provided an opportunity for representatives from the worlds of science, business and financial administration to develop new potential plans of action through intensive dialogue.

Katharina Finke E-mail: finke@zew.de