Confirming rumours which have held back industrial restructuring in Germany, opposition Christian Democrat Union finance spokesman Friedrich Merz confirmed yesterday that the party would reintroduce capital gains tax on the sale of equity stakes by large companies if returned to power in upcoming elections.
Mr Merz said: "The view is hardening that there should be a return to a moderate tax." He said the tax could be re-introduced in January 2004, as part of a wider tax reform.
After German Chancellor Helmut Schroeder pushed through the capital gains tax changes last year, some commentators expected a bonanza for the capital markets as German companies took advantage of the new regime to dismantle the intricate web of crossholdings that makes up Fortress Germany and stands in the way of Europe-scale consolidation in many industrial sectors.
They were to be disappointed in the main, as economic uncertainty and equity market fragility combined with fears that the new rules might be repealed before transactions were completed to dampen the desire for change among leading companies. Some companies however have reacted by going ahead as quickly as possible, notably Deutsche Bank, which is using the $15bn proceeds of its sale programme in part to finance a $4bn share buy-back offer in an attempt to underpin its sagging share price.
The main reason for Deutsche Bank's eagerness to sell is the fear that a new German government this year might reverse the tax changes and re-impose a capital gains tax. Giving his first media briefing since becoming Chairman a month ago, Josef Ackermann said: "I cannot rule out the possibility that a tax may come some time after September. I don't want to be hit by that."
Mr Merz says the tax break has discriminated against small businesses, which had been unable to take advantage of it; but the powerful employers association BDI is urging the CDU not to re-introduce the tax. And a finance ministry spokesman in Berlin criticised the CDU's plans, saying they would reverse a move aimed at supporting efficient and flexible companies.
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