Eichel Rules Out German Corporate Tax Cut

by Ulrika Lomas, Tax-News.com, Brussels

11 February 2005

Germany’s Finance Minister Hans Eichel, has ruled out a cut in corporate income tax before 2006, despite statements from Chancellor Gerhard Schroeder and other ministers arguing that corporate tax reform is desirable.

In comments made earlier this week, Schroeder revealed that he was in support of corporate tax reform, a view supported by Economy Minister Wolfgang Clement, who last weekend called for a simplification of the corporate tax system.

However, in an interview with the weekly magazine Die Zeit, Eichel poured cold water on the idea of reforming the corporate taxation regime, citing constraints in the fiscal finances.

"Because of our public debts there is no room for further tax cuts," Eichel stated in the report which was published on Wednesday.

He also argued bizzarely that Germany already has the second lowest tax levels in the European Union behind Slovakia, citing an OECD comparison of national tax burdens. However, the figures in question omitted social security contributions, which in Germany are comparatively high.

Nonetheless, Wolfgang Franz, a member of the Germany’s panel of economic advisors (also known as the ‘wise men’) told Reuters that the ruling SDP currently has a window of opportunity to enact some form of corporate tax reform.

"It is realistic to expect this theme will be taken up during this legislature and that politicians will agree on a model. They are not reinventing the wheel," he remarked.

In Franz’s view, the government should switch its focus from taxing income to taxing consumption, as he noted that in international terms, Germany is still a “high cost country.”

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