European Union Concerned Over Germany's Abolition Of Capital Gains Tax

by Ulrika Lomas, Tax-news.com, Brussels

12 April 2001

According to media reports in Germany, the European Union and the German government will discuss the government's plans to abolish the capital gains tax on the sale of one joint-stock company by another and also to allow the sale of long-term holdings without the intervention of the tax authority. The meeting will take place on 26 April when the EU says it will raise some concerns over the new tax law.

The EU is concerned that Germany's new tax law, scheduled to take effect next year, could be in violation of the EU's code of best practice on unfair tax competition. This is the first time that Germany has been affected by the list of unfair tax practices drawn up by the EU. However, the code of best practice has not yet been officially approved and until that time it is not legally binding for EU member states. But there is an understanding between the member states that any plans they may have to reform their tax laws should conform with the code.

It is possible that foreign countries will view the new tax rules as unfair because it has the potential to cultivate an environment that will attract foreign holding companies to Germany. Therefore it is likely that, at the meeting with the EU, the German Finance Ministry will agree to amend the legislation to prevent foreign companies from benefitting from the abolition of the capital gains tax.

The Finance Minister, Mr Hans Eichel, has previously indicated that he is willing to review Germany's law governing international tax evasion. Last week Finance Ministry Under-secretary, Heribert Zitzelsberger, had planned to deliver a report to the German parliament's finance committee explaining the need to amend the law but this has now been postponed until after Easter.

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