Eichel's High Hopes For Tax Amnesty May Fall Flat

by Ulrika Lomas, Tax-News.com, Brussels

05 January 2004

The German government's investment amnesty came into force at the start of the year, attempting to lure back billions of euros that left the country in the 1990’s, fleeing high rates of capital gains tax. However, many doubt whether the scheme will raise Finance Minister Hans Eichel’s “cautious” 5 billion euro estimate in additional tax revenues.

"We figure on about €20 billion that will be transferred back to Germany. This would mean an additional tax revenue of €5 billion across the board in 2004," Eichel stated recently.

Under the scheme, investors face a tax rate of 25% on assets repatriated by the end of 2004, a deal the government would argue is attractive compared to the 48% tax rate they would have ordinarily faced.

However, sceptics doubt whether taxpayers will so willing repatriate their funds only to see one quarter disappear into the government’s coffers. "It’s extremely doubtful that anyone is willing to strike such a deal," points out Christian Democrat finance expert Freidrich Merz.

Eichel is hoping to emulate the results of the recent Italian tax amnesty which succeeded in attracting some 60 billion euros back to the country. However, this was achieved though a substantially lower penalty of 2.5% which raised about 1.5 billion euros in revenues for Rome.

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