Capital Gains Tax Reforms Look Set To Boost German Economy

by Ulrika Lomas, Tax-News.com, Brussels

13 June 2001

German business is eagerly awaiting the capital gains tax reforms, promised for next January, which will revolutionise the structure and culture of the country's business sector. The reforms, announced by Chancellor Gerhard Schroder in 1999, will abolish capital gains tax of some 50% on the disposal of companies' stakes in other companies, and the resultant freeing up of approximately 250 billion Euros in dormant capital looks set to give a massive lift to the German economy.

It was announced recently that in anticipation of the tax reforms, foreign direct investment in Germany was positive last year for the first time in a decade, and within the country itself, preparations are already underway. 'I can tell you that we are very busy,' said Hartmuth Jung, head of UBS Warburg's German arm. 'There are a number of transactions, both German-German and German-international, that we are currently working on.'

Deutsche Bank, Germanys largest bank, has already made it clear that it will separate itself from all of its stock market listed holdings, which total approximately 20 billion Euros. 'It will just depend on the price we are offered,' admitted Rolf Breuer, the company's chairman.

However, possibly the most important implication of the forthcoming tax reforms is that when the threat of punitive taxation on the disposal of corporate shareholdings is removed, many companies will no longer be 'protected' by a large shareholder, which may spur managements to conduct their businesses in a manner more sensitive to the needs of their shareholders, or risk losing them altogether.

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